Are Regulators Using Their Battle Against Rogue Operators?

Posted by Harry Kane on Saturday, April 3, 2021

There’s no doubt that the iGaming market in the UK has grown incrementally during the last decade, accounting for a total GGY of £5.7 billion in the year ending March 2020. Online casinos dominated the market during this time, accounting for well over 50% of the reported GGY and creating a significant opportunity for new and established operators alike.

However, this growth has brought numerous challenges over the years, with the threat of so-called “rogue” and unlicensed operators one of the most concerning for regulators.

But are these operators winning the battle against the UK Gambling Commission (UKGC) and licensed casino brands? We’ll answer this question below, while asking whether the regulatory approach of the Commission could ultimately prove counterproductive in the marketplace?

The Rise and Rise of Unlicensed Gambling in the UK

Unlicensed gambling in the UK has definitely been under scrutiny of late, after the Betting & Gaming Council issued a comprehensive, 66-page report that strived to quantify the state of this marketplace.

The report was prepared by PricewaterhouseCoopers, while it followed the publication of similar datasets in 2018 and 2019.

In simple terms, the survey was carried out in late 2020, while it canvassed the opinions of 2,363 respondents who classed themselves as active UK gamblers. The aim was to understand punters’ awareness of unlicensed casinos, while attempting to gauge the prevalence of these entities and just how much was being wagered through their platforms.

The headline findings were striking, with an estimated 4.5% of gamblers in the UK admitting to playing at an unlicensed operator when wagering online. This represented a stark increase from the proportion of 2.2% recorded in 2018/19, while it equates to a total number of 460,000 players using rogue operators last year.

Perhaps even more alarmingly, the share of total stakes claimed by unlicensed casinos has almost doubled during the reporting period, from 1.2% in 2018/19 to 2.3% last year. This is in line with the growth in player activity, of course, but it translates into a significant and growing challenges for regulators and the UK legislature alike.

There is some good news in the report, however, which suggests that the efforts of the regulator, responsible gambling groups and even search engine giant Google may be beginning to tackle the prevalence of unlicensed casinos online.

For example, the total number of web visits to unlicensed sites remains broadly stable at around 27 million, with this actually representing a slight decline in the share of total visits in relation to 2018’s figures.

More specifically, the share of unlicensed gambling web visits decreased from 2.5% in 2018/2019 to 2.4% the following year, with the hope being that this could be part of a more sweeping trend that will drive the number down further year-on-year.

Not only this, but the report also found that the proportion of unlicensed operators appearing in Google search engine results (in relation to 47 predetermined and relevant keywords) fell from 229 to just 98 in 2020.

As a result of this, unlicensed casinos accounting for 5% of the total results generated by these targeted keywords, with this percentage figure having declined markedly from 12% during 2018/19.

Both of these factors can be attributed to the efforts of Google, who have made continual changes to their search algorithm with a view to removing unlicensed gambling sites and creating a superior overall experience for users online.

Interestingly, this may also have contributed to a margin decline in unlicensed operator awareness, which fell from 47% to 44% during the reporting period.

This translates into a marginal decline in the number of players who are aware of at least one unlicensed operator available on these shores. Overall, this means that a little under 4.5 million gamblers in the UK are familiar with one or more unlicensed casinos, with the decreased coverage afforded to such site through Google playing a pivotal role in this.

This result can also be partially attributed to the efforts of the UKGC, who have worked in partnership with the Advertising Standards Authority (ASA) to target rogue advertising practices which often target vulnerable players online and occasionally through television.

Of course, the creation and reinforcement of improved advertising standards has also led to sanctions to established brands such as Ladbrokes, 888 and Casumo, but it has undoubtedly made it harder for unlicensed operators to unfairly target their audience through a range of on and offline channels.

In total, it’s thought that there were 36.6 million remote gambling customer accounts at facilities licensed by the UKGC, with an estimated 33.6 million officially classed as being “active” accounts.

So, although the total number of players using unlicensed operators may be relatively small, the fact that this figure is rising (along with the cumulative amounts staked through operators) mean that this unwanted niche within the iGaming space remains of huge concern to regulators.

Conversely, dwindling awareness amongst players and a significant reduction in the number of unlicensed brands featured in Google search results represents more positive news, while hinting that the battle against rogue operators remains firmly in its infancy.

Is the UKGC Failing in the War Against Rogue Operators?

While Google has helped to make significant ground in terms of the reducing the visibility of unlicensed brands, it can be argued that this has cast a shadow over the attempts of the UKGC.

Sure, the Gambling Commission has introduced advertising restrictions that have curbed the reach of some unlicensed brands, but this hasn’t prevented a growing number of players staking more through rogue platforms.

What’s more, it has also been suggested that the UKGC’s recent attempts to regulate the licensed market has actively precipitated an increase in unlicensed market activity, with the introduction of increasingly stringent restrictions potentially encouraging players to seek out a more relaxed regime.

Back in 2018, the Commission announced its core strategic objectives through 2021, including the safeguarding of vulnerable players and enhancing the reputation of the industry and the way in which it’s perceived by individuals.

In attempting to realise these goals, the UKGC has introduced measures aimed at curbing the excesses of operators and players alike, while simultaneously making it more difficult for gamblers to verify their accounts and wager freely.

One of the best examples of this is the recent changes made to VIP schemes, which were initiated after a comprehensive report commissioned by the Gambling Commission.

This collected data from a number of established and licensed operators and found that the vast majority were incredibly reliant on deposits made by a vanishingly small number of players.

More specifically, one anonymous firm took a staggering 83% of its total deposits from just 2% of its customers, while another earned 58% of its yield from a VIP cohort that comprised 5% of its consumer base.

A third took 48% of its deposits from 3% of customers, providing overwhelming evidence that numerous VIP schemes in the iGaming industry were potentially running out of control.

Even more alarmingly, the report found that those who met the threshold for VIP scheme participation were statistically more likely to develop problem behaviour, with this type of gambler likely to habitually lose large sums of money in the pursuit of huge returns.

More specifically, the Commission estimates that there are 47,000 VIPs in Britain, with approximately 8% of this number thought to be problem gamblers. This is more than 11-times the rate amongst the wider public, highlighting the dangers posed by tiered membership schemes and the way in which operators are reliant on these initiatives.

It’s made perfect sense that the UKGC should look to act on this information, and the regulator finally took action in autumn of last year.

From October 31st, 2020, operators were compelled to carry out more robust spending checks for aspiring VIP players, to ensure that the required spend was affordable as part of each individual customer’s disposable income.

A key element of this would involve ensuring that licensees retain up-to-date evidence pertaining to each VIP player’s identity, occupation and the underlying source of their funds.

Then, customer service reps would have to assess whether there is any evidence of gambling related harm being displayed by players, while appraising whether a particular customer was at heightened risk of becoming a problem gambler.

Finally, licensed operators are now compelled to verify every piece of information provided to them by VIP applicants, while committing to ongoing gambling harm checks that safeguard players and identify signs of problem or unsustainable spending before the grow out of control.

Despite this type of intervention being well-intentioned and arguably much needed, its effectiveness depends on the subsequent actions of VIPs and the extent of their problem behaviour.

For example, players who have yet to recognise the issues posed by their problem gambling behaviour may simply turn to the black market and seek out unlicensed operators, eliminating the need for affordability checks and enabling them to indulge their passion freely and without restriction.

Even VIP players who can afford their cumulative gambling spend and aren’t categorised as being problem gamblers may be inclined to look elsewhere, as they’re unlikely to react well to facing stringent verification measures and potential curbs on their weekly or monthly bankroll.

This highlights the core issue facing regulators in the digital age, as there’s an increasingly fine balance between regulating the licensed market to protect a majority of UK players and ensuring that the unlicensed alternative doesn’t offer a viable or more accessible alternative to customers.

Understanding the Lure of Unlicensed Operators and Their Role in the Market

Of course, regulating the unlicensed iGaming market is a challenging pastime, as brands within this space look to deliberately operate outside the remit of the UKGC.

However, there’s no doubt that the regulator must take immense care when introducing new measures into the licensed marketplace, as there’s little point in creating an entity that’s too restrictive when a growing and unregulated alternative continues to run alongside it.

In order to tailor its regulatory approach and ultimately win the war against unlicensed operators, the UKGC must first understand why players turn to the black market in the first place.

According to the aforementioned PwC report, 53% of participants cited reduced odds and increased payout rates as their main motivation for seeking out unlicensed brands.

A further 30% said that affordability checks were also a key issue when sourcing online casinos, with the monthly staking limit the main consideration for 18% of respondents.

Clearly, the regulator must therefore think hard and potentially revisit its restrictions in these areas, with a potential focus on the balance of any stake limits imposed and the deployment of affordability checks on an ad-hoc and individual player basis.

This may mean pushing back on proposals of a £2 stake limit for online slots, which has been put forward by the All-Paty Parliamentary Group (APPG) for gambling related harm and would seek to revolutionise the iGaming space.

After all, this type of aggressive and extreme measure will only drive a larger number of players into the arms of rogue operators, particularly if the current level of awareness remains unchanged and unlicensed brands continue to grow in their number.

This brings us onto the second prong of the UKGC’s approach, which must encourage them to develop key collaborations and work tenaciously to clampdown on the unlicensed marketplace.

This would involve further reducing awareness through increased advertising restrictions and continued Google algorithm changes, while also educating customers on the risk of fraud posed by unlicensed operators (as opposed to the dangers of problem and compulsive gambling behaviour).

Work also needs to be done to ensure that players don’t accidentally find themselves wagering on an unlicensed site. Remember, such operators still appear in 5% of paid and organic search engine results in relation to target keywords, so some players may be visiting a rogue site without knowledge.

So, the UKGC needs to encourage players to seek out independent casino reviews and educate them on where to find licensing information on each particular site.