Regulating the Legal Market and Preventing Illegal Betting
By Martin Purbrick, Chairperson, ARF Council on Anti-Illegal Betting and Related Financial Crime
As sports betting continues to globalise, it becomes harder for consumers to differentiate between online legal and illegal betting and also more difficult for gambling regulators to understand the silent encroachment of illegal betting operators in their local market. Illegal betting operators increasingly purchase licences in jurisdictions that do not confer legality beyond that jurisdiction, creating a grey area for consumers who see them only as an online betting operator.
The global nature of online betting has made it difficult to clearly define what constitutes illegal betting. This ambiguity is exploited by illegal betting operators who claim to be ‘licensed betting operators’ because they have purchased licences from certain jurisdictions which specialise as offshore licensing havens. However, these licences provide zero legality in the jurisdictions in which these betting operators take bets. The widespread misconception among consumers that offshore online betting operators with a licence in a jurisdiction other than where they are located are legal has further compounded the issue.
In all developed countries where there is a modern Internet infrastructure, consumers have open access to the huge global range of online Internet based betting and gambling websites which the ARF Council has highlighted as involving a large amount of unlicensed (and usually illegal at the point of sale) betting operators, many operated by major organised crime groups particularly in Asia.
The ARF Council's analysis in the ‘State of Illegal Betting’ report in 2022 found that of 534 betting websites examined, less than 40% (207) were classified as Licensed and Regulated. The majority of websites examined are thus effectively illegal in most countries, being either Unlicensed and Unregulated or Licensed but Under-regulated.
ARF Council analysis and reporting has concluded that consumers are generally attracted to these online illegal betting markets because of price (better odds), product (more bet types), and customer experience (ease of access and use). This has led to the growth of online illegal betting with a growing number of consumers going to online illegal betting operators, but a challenge is measuring this.
Consumer access to illegal betting is not immediately measurable, largely because online betting customers do not respond honestly to survey questions that ask if they have taken part in an illicit or illegal activity. So we know from the ARF Council analysis and reporting that the illegal betting (and organised crime) problem is huge, but we have difficulty knowing exactly how many consumers from specific countries bet in these markets. This difficulty with measurement is causing gambling regulators to lag behind international developments in betting and gambling markets as they lack insight into the rapid changes.
Regulators focus on legal markets and licensed operators
Gambling regulators inevitably focus largely on licensed legal betting operators in their own jurisdiction, and consequently often have limited or no insight into how illicit and illegal markets are changing. This lack of insight is heightened as illegal betting operators have been expanding in offshore locations where they are beyond the reach and often even the visibility of the authorities.
ARF Council research has shown how large numbers of online illegal betting operators have gravitated to offshore licensing regimes, in particular in Curacao, Malta, and the Philippines (see the ‘State of Illegal Betting’). In addition, large number of online illegal operators have expanded their operating bases across South East Asia in Cambodia, Laos, and Myanmar. The former have licences somewhere and the latter have no licence anywhere, but both groups of operators do not have gambling licences at the point of sale where the transaction with the consumer takes place, which is where the activity becomes illegal.
If an online betting operator does not have a licence in the country where they accept bets from consumers (i.e. at the point of consumption) then this is usually a criminal offence under the local gambling laws. However, there is far too often no apparent enforcement action by gambling regulators against offshore online unlicensed betting operators and also no major commentary from regulators regarding the problem. This issue stems from a lack of insight by gambling regulators into illegal betting markets and operators, which must change if they are to effectively regulate gambling that impacts and harms consumers in their local market.
Regulators not understanding illegal markets
The lack of regulator insight into illegal betting markets is illustrated by the use of ‘white label licensing’ in some developed countries. White label betting websites have had a major role in the growth of illegal betting markets.
A complete ‘white label’ is when a whole website and licence is provided by a third-party B2B company. The supplier provides all of the technology, while the operator’s role is limited to branding and marketing and recruiting bettors. White-label websites are somewhat analogous to franchises, with minimal capital outlay required by the operator, but a large proportion of turnover funnelled upstream to the supplier/franchiser.
The white-labeller’s website content, including odds and trading management, is thus provided to tens or more other betting operators, allowing them to display their markets – and also in the case of white-label betting exchanges, to channel bets from customers in illegal markets into the wider ‘regulated’ exchange, a key integrity risk.
White-label providers enable would-be betting operators to set up a betting website in weeks with almost zero technical or bookmaking expertise. But the high fees mean that a constant stream of new losing bettors must be found. This low-outlay, high-overhead cost structure is thus one reason for the proliferation of online illegal betting websites which rapidly come and go, and for the aggressive marketing of such websites via social media and other platforms.
Silent encroachment of illegal betting to displace legal markets
In addition, many countries allow offshore online betting operators, most from Asia, to advertise at sports events, especially football, in their local jurisdiction despite the operators not being licensed in that country. By advertising in jurisdictions where gambling is legal, Asia-facing gambling operators are blurring the lines between ‘legal’ and ‘illegal’ gambling.
If online betting operators from one region advertise in a country where they do not possess a licence to accept bets, then they blur the lines between legal and illegal for consumers. In the jurisdiction where the advertising takes place consumers will have a misplaced view of the credibility a company brand about which they know nothing about. In the jurisdiction where the advertising is directed, for instance consumers in Asia watching sports competitions in Europe where Asian betting operators advertise, there is also a perceived legitimacy from seeing the brand on television. But this advertising does not confer legality, which only comes from a gambling licence in the jurisdiction where bets are accepted.
This practice is a silent encroachment of illegal betting operators in markets where they are not licensed. The websites of these “Asia-facing operators” are freely available to all consumers, who are part of a globalised online market. It is disingenuous to suggest that these online betting operators are not available in the country where they advertise but are not licensed if they geo-locate consumers, because VPNs are freely available and can easily circumvent these supposed restrictions.
Increased impact of gambling harm from illegal betting
There is currently a critical public debate regarding how over-regulation of legal licensed betting operators may drive consumers to access the online illegal betting market. It is essential for the protection of consumers that gambling regulators recognise this debate and engage with stakeholders to better understand the issue of illegal betting.
Affordability checks imposed on betting operators by gambling regulators are an example of what is likely to be self-defeating and will inevitably lead to greater long-term levels of gambling harm to consumers. This is because the imposition of these checks directly impacts ease of use of online legal betting by consumers, which is a factor to drive them to online illegal betting websites where there are no checks on customer affordability or often even identity.
Because online illegal betting operators are not subject to any licensing conditions and regulation, there is immediate potential for far greater levels of gambling harm. Consumers experience debt from borrowing to fund betting with illegal betting operators, which is a vicious cycle as criminals are often those lending money at extremely high interest rates to fund continued gambling with the illegal market. This is the prospect facing many developed markets as affordability checks on legal licensed betting operators will inevitably drive consumers to the illegal markets.
Gambling regulators should consider the long-term impact of continually adding regulatory conditions to the legal betting market, when worse negative social impacts can come from illegal and illicit gambling channels. This has not been well considered by many gambling regulators, which are usually focussed on what they know - licensed betting operators. It is important for gambling regulators to better assess social harm from gambling in parts of the market that it does not know, which is online offshore illegal betting operators.