Will we See a Rise in Black Market Gambling?

Posted by Harry Kane on Tuesday, August 16, 2022

More than a month has passed since the UK Gambling Commission (UKGC) published its advice as part of the government’s sweeping ‘Gambling Review’, which included everything from the modification of bonus structures and the establishment of a stake limit for slots to the introduction of statutory levies for betting brands.

This has met with mixed reviews so far, with some responsible gambling lobbyists suggesting that the proposed measures don’t go far enough. Conversely, others are fearful that the sweeping changes could drive customers in their droves to black market sites, which are already benefitting from increased traffic and demand.

We’ll explore the state of black market gambling in the UK in further detail below, while asking whether the introduction of new and increasingly stringent predictions will really drive online gamblers away from licensed operators. Let’s get into it!

The State of the UK’s Black Market – At a Glance

It can be hard to gauge and analyse the size of the black market in the UK, as the sites that operate in this space are largely invisible and strive to avoid any type of scrutiny or regulation.

However, the UK’s Betting and Gaming Council (BGC) has recently cited comprehensive research from Yield Sec when referencing the marketplace, noting that a staggering 250,000 people visited black market operators in December alone last year. This was up from just 80,000 when compared to the same period in 2021, although this increase was partially exacerbated by FIFA World Cup betting.

The research also analysed sites that actively advertising services and black market operators to problem gamblers who had previously self-excluded from licensed casinos and sportsbooks. Worryingly, the volume of online traffic to these sites increased by 83% through 2022, with significant peaks observed in March and April (to coincide with Grade 1 horse racing events at Cheltenham and Ascot respectively).

So, even if we account for these expected spikes and the impact of major sports betting events such as the FIFA World Cup, it’s evident that more people are wagering at black market sites than ever before. Overall, the BGC found that the total number of visits to black market sites grew by 46% last year, with some 148,000 punters accessing unlicensed platforms each and every month.

This highlights the increased popularity and threat of the black market in the UK, with operators who are active in this space completely unregulated and synonymous with practices such as underage gambling, questionable bonus offers and the unfair withdrawal of customer winnings.

The Impact of Increasingly Stringent Regulations on iGaming

It’s interesting to note that the rise in demand for rogue or black market betting sites has coincided with an increasingly stringent regulatory outlook. This trend has been prevalent since 2018, while the recent gambling review arguably has the potential to drive even greater numbers into the arms of rogue operators in the near-term.

Five years ago, the UKGC announced its core strategic objectives through 2021, which focused on the effective safeguarding of vulnerable players and those who may be underage. As a result, more stringent age verification measures were introduced by the regulator, who also announced a number of anti-money laundering laws for operators to follow.

This almost immediately resulted in a raft of sanctions for licensed operators in the UK, with William Hill fined a staggering £6.2 million during the first quarter of 2018. The exact charges here related to anti-money laundering failures and an inability to protect vulnerable players, many of whom were allowed for wager well outside of their means for a substantial period of time.

Since the regulator placed a far greater responsibility on operators to actively identify and safeguard potentially vulnerable players and prevent money laundering through their sites, black market sites have increased their cumulative user base from 210,000 and 460,000.

This means that the total number of customers wagering at black market casinos has more than doubled since a more stringent regulatory climate has prevailed, and it’s hard to see this as merely coincidence. With an estimated 22.5 million Brits now wagering online every month on average, approximately 2.04% are frequently doing so at rogue or unlicensed operators.

Will the New Regulations Make Black Market Sites Even More Popular?

The question that remains, of course, is whether the newly proposed regulatory changes will make black market casinos and sportsbooks even more popular in the eyes of punters? After all, many such proposals will have a direct impact on the customer experience, and the expectations placed on them when gambling online.

For example, one measure could see the maximum online slots stake capped at between £2 and £15. Affordability checks may also be imposed on players, especially high rollers who will have to demonstrate their earnings or disposable income levels before wagering significant amounts of cash each month.

If we drill deeper into these proposals, we can see that regardless of the slots stake limit, a threshold of £2 could be imposed on younger players (aged between 18 and 24) and those who lose more than £1,000 a day. These permutations have yet to be confirmed, of course, but they offer an insight into what customers can expect going forward.

Regardless, these restrictions will impact both the rewards available when gambling online and the documentation that players will have to provide before betting, and a recent study by YouGov (on behalf of the BGC) has found that could have a profound impact on the behaviour of punters.

In fact, the data found that some 79% of respondents thought that the heightened restrictions would result in more people betting at unregulated websites, as despite the obvious lack of player protection safeguards, players would at least be able to access limitless stakes and more accessible iGaming verticals.

At the same time, a staggering 70% of Brits would consider an alternative bookmaker if they were asked to provide financial documents or proof of earnings in order to place a bet. While there’s no immediate suggestion that affordability checks will be rolled out to all players, this could impact a relatively large number of customers and cause some to consider black market operators.

Interestingly, stringent affordability checks could be imposed on gamblers who lose large and specific amounts of money within a designated period of time. For example, those who lose £1,000 within 24 hours or £2,000 over period of 90 days could be hit with checks, creating a relatively large number of gamblers who have their online experience restricted.

These findings are also supported by industry experts and insiders, many of whom share the general fear that overly stringent and non-targeted restrictions could see an exodus of players to rogue sites. Take BGC CEO Michael Dugher, for example, whose organisation commissioned the survey from YouGov in the first instance.

“This research is the latest in a series outlining the genuine concerns of millions of ordinary punters”, said Dugher, “who feel that the people making decisions about the future of betting are out of touch and have never had a bet in their lives”.

“We want to see genuinely non-intrusive checks, which use technology to carefully target and protect the tiny minority of vulnerable punters“. However, non-intrusive, blanket, low level so-called ‘affordability’ checks will be universally rejected by punters, and risk having the opposite effect by pushing them into the unsafe, unregulated black market.

This sentiment is echoed by Jordan Lea, who is a former addict who now helps problem gamblers to cope with their own compulsive behaviour. In fact, Mr Lea lost around £500,000 through gambling during his 20s, before quitting the pastime and launching ‘Deal Me Out’ to provide educational workshops that teach people the dangers of online wagering.

While he welcomed the idea of greater and targeted regulatory measures, Mr Lea reaffirmed the idea that problem gamblers would “skirt the new limits by betting on unregulated black markets”. To underline this position, he referenced the 2019 legislation that capped betting on FOBTs to just £2, which ultimately led to a spike in registrations at online casinos and sportsbooks.

So, introducing similarly sweeping measures in the iGaming space has the potential to drive punters into the black market, and Mr Lea is calling for regulators to use the current consultation period wisely by proactively identifying and addressing the “unintended consequences” of any restrictions that are subsequently imposed.

The Last Word – A Question of Proportionality

Not only are there genuine concerns that the measures proposed by the gambling review could drive punters towards the black market, but logic seems to suggest that this is also a likely consequence. Similarly, we’ve already seen a marked increase in black market gambling since 2018, and this has also coincided with far greater regulatory oversight.

The key consideration here is the relevance and proportionality of the measuresthat have been proposed as part of the UKGC gambling review, as this

will have a key bearing on how they’re received by bettors and whether they’re ultimately fit for purpose.

In terms of slots caps and affordability checks, for example, data collated by the UKGC in 2020 found that the average UK player bets just £2.57 per week (or £133 annually) online. This means that the overwhelming majority of players would see no benefit from a slots betting cap, while most would see their experience adversely restricted for no viable reason at all.

Such figures would seem to make affordability checks largely redundant too, but the counter argument here is that such a measure would protect the most vulnerable players on our shores. However, just 0.2% of the UK’s adult population are classed as problem gamblers, with this figure down from 0.3% year-on-year and largely unchanged over the course of the last decade.

Remember, despite the recent growth of the black market, only 2.04% of the nation’s online gamblers wager at unlicensed betting sites. So, however you analyse the data and regardless of the impact in individual cases, there’s a negligible problem gambling issue in the UK and one that would not necessarily be improved by the recommended measures.

At the same time, regulated betting and gaming generates a whopping £7.1 billion for the UK economy and contributes £4.2 billion in tax payments. It also supports more than 110,000 jobs nationwide across a broad range of fields, while licensed operators continue to contribute significant sums to responsible gambling and addiction charities.

Interestingly, the recent gambling review has recommended that operators are compelled to pay a mandatory levy to such causes, making the mere idea of excessively or unnecessarily restricting their ability to earn money counterintuitive at best (and downright ridiculous at worst).

This small point aside, the prevailing consensus is that the recent gambling review is simply too broad and sweeping, while it lacks the type of targeted measures that would more effectively safeguard problem gambling. In this respect, it arguably resembles the use of a sledgehammer to crack a nut, while it could have the unintended consequence of sending gamblers scurrying to black market sites.

So, the hope is that consultation period is used wisely, enabling both responsible gambling lobbyists and betting brands to put their case and drive a more informed consensus. At the same time, lawmakers should consider the economic contribution of iGaming and the number of jobs that it supports, so that they don’t pass legislation that causes economic harm.