Licence and registration, please: Could pan-industry licensure crack the black market?

“It’s very easy, actually. If you’re going to be in the market, then you need a licence. That’s it,” said LeoVegas Group CEO Gustaf Hagman at September’s SBC Summit Lisbon.  

The Swede was on a panel alongside other gaming execs discussing how best to combat the growth of the black market in Europe. And Hagman’s suggestion was a licensing system that encompasses the entire ecosystem, as opposed to just operators. He said licence requirements for B2B suppliers, payment providers and affiliates would help suppress the rise of unlicensed operators. 

While not a new idea – the UK requires B2B supplier licences, Sweden introduced such requirements last year and Finland is to deploy a B2B licence system as it transitions away from its monopoly model – the breadth of Hagman’s licensure net is its most intriguing feature. 

Affiliates and payment providers have, historically, been able to promote and support unlicensed operators across Europe, playing a key role in firstly driving traffic to sites and then providing the vital deposit and withdrawal mechanism needed for a fluid experience. Hagman’s idea could deliver a hammer blow.

Speaking to EGR, Hagman says that while there isn’t a “silver bullet” to tackle the black market, the first steps to arrest its proliferation is for a holistic approach across the continent.

In fact, in the UK where B2B supplier licences are required from the Gambling Commission, industry trade body the Betting and Gaming Council commissioned a study, released in September, claiming £2.7bn was staked online with the black market each year.

On the idea of all industry stakeholders needing a licence, Hagman says: “I would have loved for that to be the situation, but the fact is the industry and the igaming ecosystem need long-term, sustainable legislation that is effective, up to date and ultimately enforced. 

“Right now, black markets are booming, which demonstrates that current legislation and enforcement are failing. This effectively has a negative impact on our societies, with minimal to no consumer protection, no local taxes being paid and no efficient way to regulate the industry.”

Hagman argues the B2B licences introduced in Sweden were a “step in the right direction” but were not strong enough as a siloed solution to drive change in the market. Sweden, which re-regulated in 2019, brought B2B licences to market in July 2023, with the Swedish Gambling Authority (SGA) having fined suppliers after their games appeared on unlicensed operators’ sites.

In May, Hacksaw Studios and Panda Bluemoon were fined a collective SEK3.3m after titles were provided to unlicensed operators that were accessed from Sweden.

On the SGA’s fines for B2B suppliers, LeoVegas Group’s CEO is scathing in his assessment of the policy, arguing the damage has already been done in his home country where the channelisation rate, according to a study by horseracing operator AB Trav och Galopp (ATG) published in June, could be as low as 57% for online casino and 77% for sports betting. The SGA’s own research puts the rate at 86% for gambling overall.

Hagman remarks: “Too little, too late, too irregular. The channelisation rate is continuously dropping, with black market operators and suppliers ruthlessly targeting the customers who politicians and the regulator claim they want to protect the most.

“Markets that continue to have high channelisation are those that ensure licensed companies can compete on equal terms – or even better.” 

He continues: “We should never give players a reason to seek options outside of the licensed market but, clearly, they are. Instead of targeting licensed operators, regulators should ask themselves how unlicensed operators are attracting customers and why customers find their offerings attractive.”

Gustaf Hoffstedt, secretary general for the Swedish Trade Association for Online Gambling (BOS), says a more extensive licensing regime would be best used on payment providers.

In his native Sweden, the SGA fined payments firm Zimpler SEK25m in 2023 for providing services to unlicensed operators. However, Zimpler successfully appealed the ruling this year after a court concluded the regulator had lacked sufficient grounds for issuing an injunction against the firm. 

The court verdict read Zimpler was “not aware that any relevant gambling company would provide games without the necessary licence”. The SGA is appealing the decision at the time of writing.

Hoffstedt says: “I support the proposal to extend the Swedish system of B2B permits to more sub-contractors. Closest to hand should be payment providers. Such a system does not only have its merits in that it puts pressure on payment providers to only cooperate with gambling companies licensed in Sweden.

“It also enables an increased dialogue between the SGA and the payment providers. Today, as far as I understand, that dialogue is scarce.”

A double-edged sword

Romania is one such market that has introduced a total ecosystem licensing regime, with requirements in place for operators, suppliers, payment firms and affiliates.

With significant local players such as Superbet and established international companies like evoke snapping up Winner.ro to add to its existing operations in the market, there is a case to be made that the framework has come good.

Ivan Kurochkin, 4H Agency’s partner and head of its Eastern European desk, claims a wide range of licences helps “foster trust” among operators but can also add “regulatory and financial burdens, which may deter smaller businesses”.

He explains: “Romania serves as a dual-edged example. It boasts a successful market with substantial gross gambling revenue at around $2bn across all verticals and $600m from the online sector alone.

“Yet its licensing system is a bit restrictive, open only to locally licensed participants, making operations more closed off than in jurisdictions like Serbia where B2B licences are not regulated at all. 

“Despite Romania’s well-regulated system, offshore operators and unlicensed providers that can’t afford local licences still manage to operate by partnering with local businesses.”

Hagman cites Denmark as having found a good balance in terms of licensing, as he notes joined-up thinking across Europe could help drive better outcomes. 

While a pan-European licensing system would be a stretch, given the legacy regulations and differing viewpoints of governments despite EU oversight, a “synchronised” approach across AML, responsible gambling and marketing would be more beneficial, he suggests.

“We have experienced a lack of harmonisation, likely due to an ‘immature’ industry in this respect, where regulators are still learning the ropes,” he says. 

“I’m pleased that all regulators agree on some overarching goals – such as a high level of consumer protection – but the time has come to also protect the locally licensed markets and enforce the regulations. There should be no place for unlicensed companies, whether they are operators, suppliers, affiliates or payment providers.”

An all-encompassing licence regime, according to Kurochkin, would not serve as the definitive solution to this issue. He adds: “Merely enforcing universal licensing does not eliminate the offshore market. 

Effective mitigation of the black market requires consistent and transparent regulation, reasonable licensing and tax obligations, government support and incentives for all compliant actors in the regulated industry.”

It seems fanciful to suggest the eradication of the black market in Europe could be achieved. The legacy of nation states having implemented their own regulations has created complexities that will make a single solution nigh on impossible. 

It is a view Hagman holds despite his concerns over the growing rate of those operators outside of the regulated space. 

He says: “A regulated and functioning licensed market is, in essence, beneficial. [However], I don’t foresee this improving anytime soon. Taxes, marketing rules and market scopes differ too much between markets, and most countries have regulated with different legacy markets that need to be taken into account.”

The signs are there that the black market will continue to grab industry headlines in the coming months.

The Gambling Commission is planning to release its first slate of research into the illegal sector in the UK, while CEO Andrew Rhodes has told operators’ CEOs to undertake due diligence to ensure supplier partners are not “directly or indirectly engaged in supporting unlicensed activity” in the UK. 

What is clear is that solutions will need to be presented and acted upon. Whether that is operator- or regulator-led, with the ramifications of either side taking the lead, remains to be seen.