Unregulated markets have been in the news in recent weeks, and with good reason. They generate major revenues with minimal risk, but importantly they will continue to be part of the industry for many years.
A spate of news articles and reports about illegal online betting and casino activity has come out in recent weeks and led to renewed calls for regulation of the vertical and the strengthening of legal powers to block unregulated sites.
Talk of the potential size of illegal gambling markets is not new and among the recently published reports the most prominent publication was the one published by the Autorité Nationale des Jeux, France’s gambling regulator.
The report was expected during the summer, but at least it gave an official (if often heard) estimate of the revenues that illegal online casino operators targeting France generate.
The research was carried out by PwC and found that illegal online casinos targeting France generate between €748m and €1.5bn in gross gaming revenues, and it identified 510 sites and 14 mobile apps as offering online casino products in France, with 21 sites understood to be capturing around 60% of the traffic. The report was released shortly after news came out that the country’s lottery monopoly Française des jeux could be in line for the exclusive rights to operate online casino in France.
Just over 3 million French citizens are believed to visit unlicensed casino sites, out of a total gambling population of 9 million. The estimated value of the illegal market represents between 5% and 10% of the overall legal gambling market in France, which was worth nearly €13bn in 2022, with €2.9bn of that figure recorded by licensed online betting, poker and horse racing pari mutuel operators.
The French report followed the release of a study from Germany claiming that only 51% of German gamblers wagered on licensed websites. Commissioned by the online gambling trade bodies DSWV and DOCV, it added that there had been a significant shift towards unlicensed operators since the introduction of Germany’s Interstate Gambling Treaty in July 2021 and the illegal market there is believed to be at least equivalent to its French counterpart.
Just over a year ago, the American Gaming Association published its own report on the illegal websites targeting U.S. players. Leaving unregulated machines out of the estimates, the AGA said illegal online sports betting and casino operators targeting the U.S. generate around $400bn in handle and close to $17.5bn in revenue, with sports betting generating an estimated $3.8bn and online casino $13.5bn in revenue.
By way of comparison, the AGA’s latest revenue tracker shows that from January to September this year, legal digital operators generated iGaming (online casino) gross revenues of $4.5bn and $7.2bn for sports betting.
These reports followed similar industry efforts in Sweden shortly after the country regulated its digital gambling sector in 2019. The reports can serve a lobbying purpose and in the UK the trade body the Betting and Gaming Council often warns about the perils of the black market. These warnings are often dismissed by regulators or politicians opposed to gambling as lobbying tools that commercial operators use to call for more favorable legislation to be passed.
For all that, if the data across the various reports outlining these activities is even close to being accurate, it confirms how big unregulated markets are. In the U.S., despite sports betting being regulated in more than 30 states but not, crucially, in three of the largest four jurisdictions (Texas, Florida and California), the size of the illegal market also shows what happens when there is a regulatory vacuum.
Who said irony is dead?
Still, there is a deep irony at the heart of this topic. For many mainstream operators, regulation has always been a key objective. It provides respectability and gives the industry access to major advertising platforms. From the earliest days of the online gambling wave, let’s say early to mid-2000s, online gambling executives were calling for regulation of a sector that was new, generating strong cash flows and was attracting interest from investors, mainstream journalists and, of course, regulators and ‘historic’ or incumbent operators such as national lottery and sports betting monopolies.
And yet, as I wrote during the summer, working in unregulated/black markets is a practice that is deeply ingrained, with many of those mainstream brands starting out in unregulated markets and continuing to generate substantial revenues from those jurisdictions.
Indeed, European industry observers regularly make the point that the unregulated revenues generated from gray or illegal markets enable operators to finance their regulated activities. Everyone knows it to be the case: regulators, operators, politicians and, of course, journalists.
Discussing European markets, Alun Bowden, senior analyst at Eilers & Kreicjik, recently commented that long-standing industry executives have little interest in operating in regulated markets, with their burdensome regulations and (at times substantial) taxes, but are quite happy to target those countries from Curaçao or even Malta.
And unless executives get up to similar activities as those alleged against the ex-Entain (or GVC as it was then called) CEO Kenny Alexander, the rewards can be significant; notwithstanding the odd shutdown of a few illegal sites that in most cases are back up online almost immediately.
For those reasons, operators will continue to work in unregulated markets for the foreseeable future. The opportunities are too good to miss, especially when the risks are so minimal.