The Hidden Problem

By Iqbal Johal
Iqbal Johal explores the debate surrounding the black market threat in the UK following a PwC report, and what it might mean for the country’s fight against problem gambling

The degree of threat that the black market poses to the gambling industry, particularly in the UK, is a debate which has reached boiling point in recent months.

Standards body the Betting and Gaming Council (BGC) has vehemently warned of the dangers the black market poses since the BGC was formed in 2019, a sentiment often echoed by its CEO Michael Dugher when tighter regulation is threatened to be introduced; and this seems even more likely with a UK Government review of the 2005 Gambling Act underway.

Responding to the Department for Digital, Culture, Media and Sport’s (DCMS) launch of the review in December, Dugher welcomed the move but pointed to the negatives such a review may have on the economy; to which the gambling industry has contributed £8.7bn ($12.1bn) in gross value and more than £3.2bn to HM Treasure in tax, according to Dugher. He also said the Government must ensure any changes do not drive people to the unregulated black market online, where there aren’t any safeguards to protect those deemed vulnerable.

The argument here is the concern that tighter regulation on the industry, with the review looking at potential restrictions on advertising, limits on online stakes and banning betting sponsorships in sport among others, will drive players to unlicensed operators.

The PwC report titled ‘Review of unlicensed online gambling in the UK’, which was commissioned by the BGC, outlines operators such as those who don’t hold a Gambling Commission licence for remote gambling. The report also outlines the issues associated with the black market, including a loss of tax revenue to the UK Government, limited player protections, less rigorous customer acceptance and anti-money laundering checks; and unfair terms and practices, along with poor product quality.

The report found that the number of gamblers using black market websites more than doubled in November 2020, compared to the year prior. Stakes with unlicensed operators in the past 12 months from November increased from £1.4bn to £2.8bn, while the number of customers using such sites increased from 210,000 two years ago, to 460,000. It also found, based on its survey, that the proportion of UK online gamblers using an unlicensed operator increased to 4.5% over a two-year period.

Responding to the research, Dugher said the report “demonstrates how the unsafe, unregulated black market is a growing threat to British punters” and that “there is a real danger of complacency,” calling the evidence “inconvenient to those who seek to dismiss and play down the threat of the black market”.

Operators Flutter Entertainment and William Hill echoed the BGC’s views, with William Hill CEO Ulrik Bengtsson adding: “Our view of the gambling black market is it’s a growing problem that we must confront." But not everyone agrees with this sentiment.

Gambling Commission CEO Neil McArthur dismissed the report, labelling it “not consistent with the intelligence picture,” arguing that it lacks any evidence to show an increase in illicit betting; and that any impact of the black market threat “may be being exaggerated”.

The counter-argument to the black market threat appears to be that there’s a lack of evidence to suggest raising industry standards with tighter regulation will encourage customers to bet with illegal operators.

One such organisation that is scathing in its assessment of much of the UK gambling industry is charity Gambling with Lives.

The charity was set up by families bereaved by gambling-related suicides, with the common link being they all suffered from gambling addiction, and it aims to raise awareness of the threat gambling can pose to people and their families.

The charity’s stance on the black market debate is not hard to gauge. It agrees with a January letter sent by 30 recovering gambling addicts to the UK Secretary of State for the DCMS, Oliver Dowden MP, saying they believe the threat of the black market has been “overstated” and that licensed operators offer “totally inadequate consumer protection”. The signatories’ main point was that they have collectively lost £11.9m with 507 regulated gambling site accounts, compared to £113,000 on the black market, as a result of gambling addiction.

Someone who has been deeply affected and has experienced the devasting consequences gambling addiction can cause is Gambling with Lives co-founder Charles Ritchie. Ritchie’s son, Jack, tragically took his own life in 2017 aged just 24 and had suffered from a gambling disorder since he was 17.

For Ritchie, the black market debate is a deliberate distraction to what he believes is the main issue of lax regulation, products and practices in the UK market which, he  tells Gambling Insider, drive addiction.

“The scale and level of harms is enormous,” Ritchie explains. “International research estimates there are 250 to 650 gambling-related suicides every year in the UK. The industry tries to highlight the ‘low and stable level’ of problem gamblers but we haven’t had any comparable population figures since 2016. The most recent figures published last spring found a problem gambling rate of 2.7%, some 1.4 million people, or a fourfold increase on the 2016 figure. More importantly, recent research by Oxford University found one in four gamblers are suffering serious harms.

“Our view is that gambling should be enshrined in law as a public health issue, and government should legislate for precautionary actions that a public health approach entails. Those actions should include independent, evidence-based public health messaging about the risks associated with gambling; requirements for dangerous products to be made safer, including through slowing down speeds of play and the application of stake limits, stringent affordability checks; an end to all VIP schemes; and an end to all gambling advertising, including sponsorship of sports, among others.”

When asked if problem gambling was being dealt with in a suitable manner by the industry, Ritchie was blunt: No. But he elaborated further, saying: “The industry promotes the responsible gambling model of gambling harm, a small number of individuals rather than accepting that it is a public health issue driven by toxic products and some appalling practices.

“They claim to identify problem gamblers using algorithms based on markers of harm. That has a role but currently each operator has their own approach, none of which has been subject to independent scrutiny. And frankly, we still hear of too many cases of people experiencing massive losses where you don’t need an algorithm – just the will to spot and intervene rather than keep on taking the money.”

On the topic of the back market, Ritchie is very much on the side of the Gambling Commission, sharing similar views to those in the letter sent to Dowden MP. He described the tactics adopted by industry lobbyists as scaremongering, and compared them to the payday loan industry, when they opposed reform.

Ritchie added: “We are also in touch with hundreds of recovering gamblers and virtually none of them had any contact with black market sites. None of the young people from Gambling with Lives families used the black market.

“Embarrassingly for the industry, the BGC funded report found that among the biggest factors why people play on unlicensed sites are brand and reputation, odds/return to player and ease/speed of withdrawal. Another reason is people having their accounts restricted: a reality of the industry is that if you lose you are offered bonuses to keep playing, but if you win your bets are severely restricted.

“Many in the industry used to say that affordability was the key to tackling gambling harms. Now as the prospect of action draws near, the same people cry out about the black market. The reality is that the vast majority of gamblers would not even come close to the proposed threshold of £100 per month to trigger an affordability check. And an assessment doesn’t have to be any more intrusive than applying for a bank loan; much of the information is available on open banking platforms and is already used by the industry.”

When it comes to how the industry can improve on tackling problem gambling, Ritchie believes it needs to take action to reduce the addictiveness of high-speed games; which it has started to do with the Gambling Commission introducing an outright ban in February on auto-play, slot spin speeds faster than 2.5 seconds, features that speed up play and sounds or imagery that give the illusion of a win when the return is equal or below a stake.

Ritchie concluded: “The industry must act more responsibly in its dealings with customers. They shouldn’t offer bonuses and inducements to persuade people to keep betting or gamble beyond their means. And they should not cross-sell high-speed addictive slots and casino games to people who actually only want to engage in sports betting. Regulation cannot be restricted or framed to allow the UK industry to continue to harm on the scale that it does.”

In debates like these, it’s naturally crucial to hear from both sides. Lee Richardson has been involved in the gambling industry for nearly 30 years and is currently the CEO of independent gaming consultancy firm Gaming Economics, which provides guidance for operators and suppliers. He is also the co-founder of podcast The Big Betting Balagan, which focuses on the good, the bad and ugly of the industry.

That at least paints a picture of Richardson’s balanced views, and that he’s not afraid to speak up against the industry even though he works within it. And that’s very much in keeping with his perspective on the black market, telling Gambling Insider that it’s not easy to define.

“Of course, the biggest single challenge in making any real impact assessment of any black market is that no-one knows the real scale or scope of such a market by definition,” Richardson says. “It isn’t measured, nor is it easily measurable. One has to rely on estimates, guesstimates and anecdote, so it’s not the greatest basis for informed comment.

“But if we know anything, it’s that prohibition doesn’t work in any sector. Look at the US, potentially the largest legal sports betting market in the world. Despite two-and-a-half years since the repeal of PASPA, around 75% of online sports betting is still bet with the unregulated sector. Closer to home, examine markets like Portugal, Turkey or Russia. Consumers will always seek to find alternatives where the opportunity exists, or where a regulated sector offers poor value or poor service.”

And on the topic of the PwC report, Richardson believes energy would be better spent commissioning more research into the black market threat and how to limit the risks, rather than research that only adds fuel to the fire and further debate.

Richardson, however, certainly admits the need to be aware of the the black market, and would welcome independent research  to understand what drives them to it.

He said: “I’ve read some of the commentary and criticism concerning the PwC Report into this topic, as commissioned by the BGC, and I think some of it is misplaced, frankly.

“While everyone knows research can have limitations, not least research designed to inform on either a hitherto under-researched, or poorly understood area, it’s at least resulted in debate about this issue. Risk is being better assessed, people are talking about the issue, and the consumer must ultimately benefit from that, as should the regulator and the industry itself.

“Rather than simply critique the content or conclusions, I would argue that more, not less, research into the current motivations of consumers who use the black market would help both the regulator, and the industry, in formulating sustainable changes to the regulated sector. Helping consumers to have fewer reasons to consider leaving the regulated sector should be the guiding principle here, nothing less.”

And summing up what should be done to help prevent problem gambling, Richardson concludes: “Within the current debate over problem gambling, it increasingly looks like we’ve reached an impasse. It’s unacceptable that the very tools in use to define the issue are still – but rightly – deemed imperfect by all sides, whether by the regulator, academics or the industry.

“For long-term sustainability, we need better, deeper and evidence-based understanding of what truly, and unequivocally, constitutes problem gambling. The current reform of the 2005 Gambling Act must deal with this critical weakness. More, in-depth research into the key consumer motivations to use the black market would greatly help both the regulator and the industry in formulating sustainable changes to the regulated sector.”

It’s a debate that can be argued for or against at length, but is certainly a relevant one during a pandemic, which has increased online play amid national lockdowns, and the ongoing UK Government review of the Gambling Act. Which way your views are tilted depends on your position in or outside the industry.

A Gambling Insider poll on LinkedIn from January showed the majority of readers were in favour of the industry, with 67% believing the threat of the black market was legitimate. However, it’s clear that changes do need to be made to regulation to prevent gambling addiction, which has caused too many lives to be damaged as a result. At the same time, a greater understanding of gambling addiction and the potential threat of the black market is essential in making sure any regulation that does come in isn’t seen as draconian. But one way or the other, change is coming to the UK market.