High-stakes bettors find it increasingly difficult to get down in regulated markets

Gambling Black Market Isn’t Going Away — Not In Europe, And Not In The US

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A primary goal for any regulated gambling market is channelization — that is, bringing existing bettors from the black market into a safer (and taxed) environment.

In theory, the better the regulations, the better the channelization. However there are signs in both Europe and the US that the pendulum is starting to swing the wrong way.

Recent momentum in the UK is toward protections that prevent people from gambling more money than they should. And it’s hard to argue against the importance of such a shift. But as with any complex, finely-balanced ecosystem, there are knock-on effects.

“Beware the law of unintended consequences,” said GVC CEO Kenny Alexander. “As licensed operators become less attractive to punters, the size of the black market in the UK will only increase.”

Friction increasing for regulated bettors

A new PWC study, backed by William Hill and GVC, warned the UK black market was already worth some £1.4 billion in annual stakes.

The study found a market primed for further growth thanks to increased friction for customers around things like source of funds checks and affordability measures.

In short, high-stakes bettors — be they losers or longterm winners — are finding it harder to get their money down.

Protecting losing customers

Starting with losing customers, regulated firms have shut hundreds of thousands of high-staking accounts in the past three years in an effort to protect those players from themselves. Thousands more accounts have been closed voluntarily via self-exclusion.

Many of those players will have stopped gambling altogether, but many won’t have. Instead, they may now be customers of another company unscrupulous enough to take their money.

UK trade group Betting and Gaming Council (BGC) says 200,000 UK gamblers used black-market sites in the last year. According to traffic data quoted by the BGC, black market sites drew 27 million visits from UK IP addresses last year.

With a potential £2 cap on online slot stakes looming, the problem looks set to get worse before it gets better.

Shutting winners down

At the other end of the spectrum, anecdotal evidence from a range of professional bettors and syndicates contacted by OPR supports the idea of a growing black market for UK bettors.

These groups are increasingly moving their money away from the regulated market and into illegal exchanges and private bookmakers.

“It does seem like a fairly new thing,” says one professional football bettor, talking on the condition of anonymity.

“We have a contact over WhatsApp that will take literally any limit on top football leagues at the Betfair market price. The money ends up in India somewhere rather than hitting the market.”

“We bet into a lot of off-screen liquidity,” says another syndicate member. “Brazil, Thailand, Dubai, South Africa. America is the biggest. The number of private bookmakers is growing every year; it’s incredible. We are basically looking for any way to get down that doesn’t impact the global betting market.”

Bettors don’t have to prove their identity or source of funds to these unregulated operations, and they additionally benefit from not moving the market with their action.

Black market still growing

Of course, betting off-screen is nothing new. Syndicates have been betting among themselves and into gray and black markets for years.

Illegal horse racing exchange Citibet is said to turn over $50 billion annually in Asia, for example. And the flow of money into the black market shows no sign of slowing down.

“With a new Gambling Act on the way in the UK and more regulation looming, it feels like off-screen liquidity is only going to keep growing,” the football bettor says. “Especially if crypto facilitates people getting money in and out.”

There are potentially lessons here for the development of the legal US betting market too.

Lessons for US online gambling

“Regulated bookmaking to date has added nothing to the professional bettor,” says Gadoon Kyrollos, better known online as Spanky. “Limits are low and being kicked out is always imminent.”

Under these conditions, the biggest players are happy to stay in the black market. This, in turn, creates the potential for corresponding integrity issues for the sports being bet on.

Despite what the pro leagues have argued for years, it’s much easier to spot suspicious betting patterns in regulated markets.

Kyrollos says pay-per-head shops and offshore books remain the preferred outs for sharp bettors. These firms aren’t exactly reporting their action to integrity associations.

Therein lies the key point: Unless there are relatively frictionless ways for big punters to get their money down, the black market will continue to thrive. Whether its betting exchanges, market-making sportsbooks, or VIP-focused casinos, successful channelization requires a suitable product for non-recreational players.

As US states consider their betting regulations in 2020 and beyond, they would be wise to bear that lesson in mind.

- Brad has been covering the online gambling industry in Europe and the US for more than four years, most recently as the news editor at EGR Global.
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