The GCF look at the impact that the Gambling Commission’s affordability proposals will have on the black market.

What are Harms markers and are they working?

There have been many accusations that the Gambling Commission are failing to take the threat of the Black Market seriously enough, as they prepare to bring in affordability checks on what is estimated to be over 1 million accounts and make official enhanced checks on people’s income and wealth where most operators report that 80% fail to comply. The Racing Post have already reported that wealthy racehorse owners who face these requests are refusing to access to their personal finances for obvious reasons, and as a result are giving up on the sport. Clearly there are two possibilities consumers are being faced with, should they wish to place more than a token wager on their horse: turn to black market operators, or forgo betting altogether. Clearly both are hugely damaging to the horse racing industry.

The GCF continue to be mystified that the Gambling Commission views the black market rate to be very low, yet considers the rate of problem gambling, which has remained stably low for many years, a huge problem, and worth unleashing destruction on an entire industry, with no evidence these measures will help the very people they purport to protect.

I have been listening carefully to what the Gambling Commission CEO Andrew Rhodes has had to say on this, most recently on the Gambling Files podcast and last month at the CMS Select Committee Hearing, where he made similar comments. On the Black Market he has stated ‘We hear this a lot and I have said in public a number of times that I think the risk is over-stated, but I do not think there is no risk. A lot of people around the industry will tell you that within the GB market, to be technically correct about it, the size of the black market is very small as they estimate the position to be, but estimates do vary.’

Rhodes did go further in his recent speech to the International Association of Gambling Regulators in Botswana stating Great Britain by “international standards a liberal marketplace with high levels of channelisation, reported at 97.6%”. He continued: “Whilst the illegal online market exists in Great Britain as it does elsewhere, it is not a significant concern and this position hasn’t fundamentally changed. However, that does not mean there is no illegal market or no risk.” Therefore we have a benchmark black market rate of 2.4%.

Overstated but no risk is very non-committal and leaves options open for what happens should these measures come in. What was more curious was what he went on to say ‘however, every time I have heard someone say to me, “Based on what is happening here, people are going to the black market”, I have asked them same question, “Tell me where”. I have not once had an answer. I have not once been given the name of an operator or a person or a location or anything I can act upon, and I have consistently asked that question every time.’

In the statement before, he boasted about how the GC had been closing down sites and working with Google to have them removed. If no one is saying where, then a simple search of unregulated bookmakers offering UK racing throws up plenty of sites, many based in Curaçao, a Caribbean island tax haven. Mr Rhodes seems to be under the illusion that we still live in the 1950s, where dodgy money was passed between man to man in a brown envelope – the reality is we live in a world of rapid technological advancement, and sophisticated fraud can come in many forms. 

According to the Asian Racing Federation, who have carried out extensive research into the black market, it is estimated Curacao has licensed over 12,000 betting websites, although the exact number is unknown because it does not publish a list. Its websites are classified as ‘Licensed’ but ‘Underregulated’ because its raison d’etre is to license operators who take bets outside of Curaçao. The primary requirement to qualify for a licence is to pay around EUR35,000 to EUR45,000 per annum to one of four private companies which are permitted to issue licences. Operators are not required to pay any tax nor are subject to any meaningful oversight, and a single licence covers any kind of interactive gambling – including sports betting, casino, slots, lotteries, poker, as well as any kind of interactive gambling not yet invented or imagined. This is one reason why most cryptocurrency bookmakers are Curaçao licensed.  

The Gambling Commission boast of deals they have done with Mastercard to try and stem use of unregulated bookmakers, but with so many payment and currency options, this can be easily overcome. The regulated sector in the UK is going to face significant challenges competing with the black market if they are given an instant boost of thousands of UK gamblers being regulated out of the market. As the Asian Racing Federation also noted, the black market ‘pay no tax at all as criminal enterprises, and also do not make other payments such as problem gambling levies, sport and racing levies, or charitable donations.’ 

It also stands to reason that with the costs of compliance in administering affordability checks together with various other costs in relation to marketing being piled on by the GC that regulated bookmakers will have to increase their margins with worse prices available to gamblers. Black Market bookmakers will have a significant competitive advantage in this regard. The ARF note ‘Unlicensed and Unregulated betting is growing faster because these operators have advantages in price, product and promotion. They have little of the operating costs of Licensed and Regulated operators; they provide a far larger range of offerings, notably products unavailable or more limited for most Licensed and Regulated operators; and they aggressively market through means unavailable to Licensed and Regulated operators.’ 

A further matter which the GC has seemingly not looked at or do not consider to be their problem is the impact this will have on sporting integrity. We return again to the Asian Racing Federation report that stated ‘Illegal betting on a sport can damage that sport’s reputation —- particularly if it is one already closely associated with betting by the public, such as horse racing. Illegal betting may be also be indicative of an intricate and nefarious web of criminal involvement in a sport. Unlike the Licensed and Regulated wagering industry, where licensing and statutory obligations facilitate mutually beneficial co-operation, data analysis and intelligence sharing between the industry, sport, and law enforcement, Under-regulated and Unregulated betting markets opportunistically undermine the integrity of any sport they so desire, flouting domestic and international law. Motivated by illegal betting gain, resulting conspiracies can endanger the human and animal participants in a sport. They can also affect the wider public, given that illegal betting is accompanied by tax evasion, money-laundering and associated, transnational economic crime.’ 

Andrew Rhodes has claimed there is little research into the black market, however there is plenty of historic and international precedent. The black market usage in other territories is well documented where availability to a competitive regulated market is difficult or does not exist. Victor Chandler in the early 2000s demonstrated that betting in Gibraltar with no tax would draw and immense amount of trade, so much so that the Government at the time had to abolish betting duty. If gamblers feel they can trust the brand and they are in the position where they cannot access regulated markets, then a perfect storm ensues. Countries like Norway now see a staggering 66% black market rate, when the implementers of heavy handed regulation failed to consider the unintended consequences of their policy. 

There are those who dismiss as a minority the people who will use the option, however with the way affordability is being designed, bookmakers will act like some banks and rid themselves of customers who are showing a history of credit card and payday loan use as they pose too much of a risk. Sources in the industry suggest this is at least 5% of the customer base and those who are most vulnerable who will be prey to black market operators.  

It is said that the road to hell is paved with good intentions. Many thousands of gamblers either because they are judged a too much of a risk by bookmakers or because of an unwillingness to comply with document requests will, under these proposals, find their ability to bet as they wish curtailed. 1930s America showed that in these circumstances, a black market thrives and it is the Treasury, the racing industry, and most importantly the gambling addicts who will lose out when the inevitable happens, should the Gambling Commission pursue the current course.  

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