Study calls on regulators to adopt five measures to combat the black market

A Regulus Partners study, backed by Entain, into tackling the black market reveals that illegal gambling is as much as 60% of the market in some European countries, as the analyst and consultancy firm lists five ways to improve channelisation.

The report, published yesterday, 24 September, suggests policy makers and regulators block IP addresses and payments to illegal operators, restrict mainstream and social media adverts, step up criminal enforcement and create a public blacklist to educate customers.

According to Frontier Economics, which was quoted in the report, Britain’s black market is “now estimated at £2.7bn in staking terms” or 2.1% of the country’s online gambling market.

The report says “policy tools” would help close the “tax gap” of up to £335m of gross gaming yield (GGY) throughout the next parliament due to illegal operators and that there are an estimated 1.5 million players using black market options to gamble.

Meanwhile, the study says players under the age of 35 are more than twice as likely to use the black market than older gamblers.

A graph within the report shows how Finland and Hungary are two markets where the black market makes up more than 60% of the total online gambling industry in those countries. Germany and France are both above 50%, while Norway was 50%.

The study suggests that since there are more than 4,000 gambling operators globally, 2% to 3% leakage is “almost guaranteed” if black market operators are allowed to market their product alongside legal operators.

On tackling the problem, Regulus Partners concedes that social media platforms are hard to monitor because the majority of websites are owned by three companies: Meta, Alphabet and ByteDance.

However, the firm says regulation is possible if the Department for Culture, Media and Sport Committee (DCMS), Gambling Commission and Ofcom use the Online Safety Act to its fullest.

The Online Safety Act forces social media platforms and search engines to actively block illegal content.

As for IP blocking, the study uses Australia as an example of the “most prolific use of ISP blocking”, with over 1,000 websites barred by the Australian Communications and Media Authority (ACMA) from November 2019 to July 2024.

Regulus Partners notes that the Online Safety Act not only strengthens the law but also the regulatory powers over search engines to make the black market “far less visible”.

Like other attempts to counter the black market, payment blocking is about making it harder for illegal operators, as opposed to preventing them.

The study highlights that working closer with banks and payment service providers can help improve channelisation.

Looking at a public blacklist, the report makes clear that it should be “part of a regulator’s channelling tool kit” but that it must be managed, and history shows that the list does not ultimately change customer behaviour but instead points them in the right direction towards legal operators.

Looking at several regulated markets and what these countries believe are the best practice lessons, the report says Denmark notes that laws need to be clear, although “website blocking does not prevent black markets”.

France argues the scale of its black market “clearly shows that tough enforcement measures have little effect once consumer friction is sufficiently great”.

Both Hungary and Norway believe that a blacklist, payment blocking and cooperating with the banking sector disrupts the black market.

The study adds: “Unless and until Hungary removes consumer frictions to using its forthcoming domestically regulated market by ensuring minimal product and price distortions as well as adequate consumer choice, a black market in Hungary is likely to prove resilient in the longer term, in our view.”

In the study’s conclusion, it points out that friction such as a lack of choice and product and spending restrictions will inevitably lead to “some level” of demand for illegal alternatives.

If a large number of frictions arrive in a regulated market, the black market can become “dangerously large”, Regulus Partners highlights.  

It states: “Regulatory frictions are an inevitable part of online gambling regulation; they cannot and should not be completely avoided.

“However, if the taxation and regulatory policies of a jurisdiction introduces frictions to protect customers or raise money, it is vital that they also introduce frictions into the functioning of the online gambling black market to prevent unnecessary and self-defeating leakage.”

Entain chair Barry Gibson, who is set to retire at the end of the month, commented that global policymakers must prioritise combating black market operators to better protect players.

Gibson said: “Taking on the black market operators should be the number one priority for policymakers around the world.

“We’ll protect players, tackle crime and raise money to spend on nurses, schools and roads.

“It would ensure that customers get greater protection from playing with fully regulated and legitimate operators.”