500% growth in UK black market: A warning sign for regulators

The history of gambling is littered with failed attempts by lawmakers to bring the activity into a fully controlled environment.

In the UK, it is 65 years since the Betting and Gaming Act paved the way for legalised casino gambling, commercial bingo halls and of course bookmakers. Forty-five years later, the Gambling Act 2005 ushered in a new era of regulation, leading to the creation of the Gambling Commission two years later.

Just over two years ago, the long-awaited Gambling Act Review white paper was published – a meticulous 268-page document outlining countless proposals for an evolving industry – including, crucially, a commitment to strengthen the Gambling Commission’s powers to tackle illegal gambling.

It is therefore a sobering warning for lawmakers across the globe that a gambling jurisdiction as mature and heavily regulated as the UK is still home to a thriving black market.

Black-market challenges

A 2024 survey commissioned by the Betting and Gaming Council estimated that up to £2.7bn is staked online with black market operators each year in the UK – the equivalent of 2.1% of the £128 billion staked annually with licensed online operators.

While 5.4% of UK gamblers use both regulated and illegal operators, illegal gambling accounts for 12% of their wagering expenditure – a disproportionately large slice of their wallet. The 0.8% of gamblers who exclusively use illegal sites spend an eye-watering £695m annually. Perhaps more worryingly, though, more than one in seven gamblers recognise at least one illegal brand, the survey found.

The problem is by no means contained in the UK. Experts warn that similar dynamics are playing out globally, with well-meaning regulations unintentionally accelerating the shift to illegal gambling.

David Matthews, CEO at Onyx Gaming, is a firm believer that the current trajectory is counterproductive and threatens to undermine responsible gambling efforts unless there is a sharp change of direction.

A growing problem

Onyx Gaming is an established operator behind the new sports and online casino BetWright – and its motto is, appropriately, ‘Safer Gaming through operational excellence’.

“We have seen recent figures showing over 500% growth in UK gross gambling yield within the black market over the past five years, so this problem is only going to grow,” Matthew says.

“We have seen recent figures showing over 500% growth in UK gross gambling yield within the black market over the past five years, so this problem is only going to grow.”

“Customers ultimately vote with their wallets. The more you tighten a regulated space, the more likely you are to drive customers into the black market. This is a known outcome tested over time across many different industries.”

Experts argue that the increasing frequency of penalties relating to player protection, Know Your Customer (KYC) and anti-money laundering (AML) checks over recent years has led to regulated operators adopting an overly cautious approach. As a result, they request a burdensome selection of sensitive documents, including bank statements, from customers. Inevitably, some customers become frustrated with such a prolonged process and simply migrate to operators that provide a less intrusive onboarding experience.

Recognising the dangers

However, whilst the black market appeals to some, there are multiple dangers for punters who engage with illegal gambling, Matthews warns.

“The obvious danger is that your funds being confiscated with little to no recourse,” he says. “Ultimately when you transact with an entity which is not legally trading you run the risk that your funds may never be returned.

“But alongside that you run the risk of funding a business that likely does not have your best interests at heart and contributes nothing to the communities within which you live, through taxes, levies or charitable contributions.”

Further turbulence is likely, with taxes rising for people and businesses. In June, a YouGov survey found that 65% of gamblers agreed that a further rise in rates “would make customers turn to unregulated betting sites” if taxes were passed on to the consumer.

Put simply, the growth of black market gaming platforms in the UK – and elsewhere – shows a risk of “over-tightening” regulations, says Matthews.

“Some of the safeguards are absolutely required,” he adds. “However, some of the more recent legislation, which seeks to diminish the player experience, appears to be driven by a political agenda playing on people’s emotions rather than the rational reality that we all live in.”

Compliance pillars

The compliance and safety infrastructure that underpins regulated online casino and sports betting operators in the UK, for example, basically falls under three pillars.

AML and KYC checks focus on prevention of fraud and terrorism, while affordability checks assess financial vulnerability. Additionally, safer gambling provisions have become mandatory in numerous markets through self-exclusion options and self-imposed spending limits, for example.

However, black market operators have the freedom to play by their own rules.

“Depending on where these black-market operators reside, they may decide to follow some, or none of these as a pure business decision,” Matthews says. “But most likely, at the maximum, they will stop at AML checks.”

Delivering value

It is relatively easy for a punter to check if an online gaming platform is regulated or illegal in countries like the UK. Players can simply scroll to the bottom of any betting and gaming site and see whether it has an active Gambling Commission licence number.

Licensed operators, though, have a tougher task when going head-to-head with illegal platforms.

“Realistically, as a licensed operator, the only thing Onyx Gaming can do to combat the rise of the black market is try and provide a high-quality service to players that delivers value to them,” Matthews said. “We cannot protect players from registering with black-market casinos, but we do have to compete with them.”

The real responsibility lies with regulators to ensure the measures designed to protect consumers are not so restrictive that punters are encouraged to explore illegal operators for the playing experience they are seeking.

Therefore, according to Matthews, a different approach is required if the authorities are to stem the growth of illegal betting.

Re-evaluating the strategy

“There is a never-ending game of whack-a-mole currently being played across the industry seeking to try and ban, block or censor these brands. However, I do not expect this to be reflected on as a successful strategy,” he says, referring to the UK specifically.

“Ultimately, the only answer to this is to re-evaluate the approach to regulation in this country. If you speak to most people and ask them what they want from a regulator, it’s usually to ensure that there is fairness, transparency and protection of their funds, so their winnings and cash will be rightfully returned.”

A commitment to fairness, transparency and protecting customer funds, rather than “friction, nannying and diminished fun, which appears to be the current remit”, would be more impactful, Matthews adds.

Seeking a safer environment

One thing is beyond question: the size of the global gambling black market is huge.

In the US, where igaming and sports betting legislation is applied on a state-by-state basis, the American Gaming Association estimated in 2022 that over half a trillion dollars was wagered per year on unlicensed operators, creating an illegal market valued at $44.2bn.

In Europe, meanwhile, estimates vary wildly, but most studies have pinned the value of the black market at more than €20bn. However, experts warn that the real scale of the illegal gambling market is almost impossible to quantify.

Furthermore, while there are ongoing fears about the exodus of players to the black market, there are also concerns that operators themselves will increasingly view an unregulated status as a more attractive option than being licensed.

“A 500% growth in the black market tells its own story,” Matthews concludes. “If the government and the regulators care about this issue, then they will listen to operators and consumers instead of anti-gambling campaigners.

“Let’s unwind some of the complexity in the current regulations, encourage these operators to come on shore, and contribute taxes in a safer environment.”