Black Market Operations: A Phantom Menace Across Regulated Betting & Gaming

Written By:

Bill Pascrell, III – President, North America, A GAME ABOVE.com

The phantom menace

The landmark Supreme Court (SCOTUS) decision in 2018 to strike down the federal ban on sports betting has, in just two years, led to 20 States legalising sports betting for their citizens, whilst four States have a full spectrum of betting and gaming products, including sports, poker and casino, available online and on-property, in land-based resorts. For many Americans though, regardless of which State they live in, betting and gaming, across all products, has for years, been widely available simply by going online and using a search engine or social media platform to find an online betting and gaming site.


Searching online for a casino or sportsbook will deliver mixed results: some legal, licensed sites, in those States that have enacted and passed legislation to allow online betting and gaming; and, many unlicensed, offshore sites, based in locations like Curaçao and Panama, available online across America, but without any reference to State laws, or restrictions to specific products, such as “sports betting only”, and all, alarmingly, without any contribution to State taxation or facilitation of player protection.


This is no recent phenomenon. Today’s patchwork quilt status of legal permission across the USA, where less than half of all States have legalised some form of betting and gaming, comes after more than a decade of prohibition against online gaming created by the Unlawful Internet Gaming Enforcement Act (UIGEA) in 2006. Whilst this may have been an effective prohibition against licensed, taxed and regulated online gaming, it was no barrier to the presence of online gaming, period. The same was readily available, over the telephone and online, via any of the many offshore, unlicensed, untaxed and unregulated sites, that collectively make up the black market.


The issue with the status of this black market, historically and today, is that few, if any, consumers, actively identify these operators as illicit, illegal or irresponsible.

Why?

Due to the nature of finding them and accessing their services. They look, feel and operate like any other online betting and gaming provider, and consumers locate them via identical means: search engines, social media influencers, online ads, referrals, PR mentions, etc. At no point did any consumer need to go to the wrong side of town to find some betting and gaming – it was, and is, readily available via their smartphone handset, regardless of legality.


Why this matters? Two key reasons

There are two key reasons why this matters, for US States and every nationally-regulated market, around the World:

  • Taxation

  • Player protection

If legalisation and regulation are to be successful for society, in raising money through taxation for good causes and government spending, and to provide an effective safety net relating to those consumers for whom gambling can create harm, there must be a fully-realised framework to effect the intent of the law, to impose conditions and realise the highest potential taxation revenue from an activity which society rightly regards as potentially problematic.


Without adequate systems to monitor, police and enforce, the potential of a legalised, regulated marketplace is like the air in an untied balloon – it will simply bleed away, in this case towards unlicensed, unregulated operators who pay no tax, and take no care of their customers, or the vulnerable who should not be the customers of any operator.


Recognising the black market: What is an unlicensed, unregulated site?

Briefly, an “unlicensed, unregulated” site is one that has not:

  • deferred to the law, government and oversight by a local regulator

  • complied with a competent licensing process that demands a license fee and vetting of their business and its key individuals to be free of criminal convictions

  • committed to observing all rules and regulations, and provided for the regular payment of taxation, typically taken off their audited gross profits

  • executed player protection measures to care for all customers, and to exclude the vulnerable and the under-age

Consider this through a recent example of a public relations initiative by BetOnline.ag, an unlicensed, unregulated offshore site, targeting the USA but based in Panama, cashing in on the enduring public popularity of Michael Jordan and the Chicago Bulls legacy. In response to the popular ESPN/Netflix series, The Last Dance, BetOnline.ag hosted a Zoom call featuring Bulls teammates of Michael Jordan, mainly to offer their contrary views of the history contained in the documentary. Pick-up by the press of the 50-minute call, including an accompanying YouTube video branded throughout by the unlicensed, offshore operator, was featured across national US publications including Forbes, NBC and Yahoo Sports, some of the biggest, most trusted titles in journalism. The value of this initiative, by comparable media-spend value for the press coverage received, would be into the millions of dollars.

If the publishers don’t care, or even know, to exclude manipulative press placements like this, from operators who are, to all practical purposes, “illegal” in the United States, how is the general public meant to know any better? Betting and gaming licensing and regulation, unlike other public-safety initiatives such as the smoking ban, run the risk of being destined to become ineffective without adequate public education and the practical raising of awareness across what is, and is not, a legal, licensed online betting and gaming destination.

The tasks of promoting why we license and who it serves – the adult population, whilst excluding and protecting children and the vulnerable – have been missed if the general public, publishers and online search and social platforms do not discriminate between a betting and gaming market that is licensed, versus the moving shadow that is unlicensed and unregulated. Over time, the impact of this upon the inflated yet untied balloon is predictable: the air, or taxation revenue, will escape, along with meaningful player protection measures. It is even more predictable when for many Americans, sites like BetOnline.ag have been the standard “for over 20 years”, as their website branding proclaims.


What this means – for taxation and player protection

What does tolerating the presence of the black market mean, in practical terms, for the two key reasons?


Taxation

The yield from taxation revenue upon betting and gaming will be depressed, frustrated and decreasingly predictable. Taxation yield upon legal, licensed betting and gaming will only be accrued from those sites who responsibly got in line, complied with conditions, gained licensing, pay taxes and operate according to rules and regulation, but who face daily unfair competition from sites who do not compete upon the same playing field that the licensed do. For every site that gains a license, there are conservatively two or more who remain offshore, continue to target a market, but pay no tax, protect no players and comply with no rules.

This duality of the marketplace, invisible to consumers due to the reality of finding operator results and brands online, is referred to by the term “channelisation”: the percentage of the betting and gaming universe that moves from a pre-regulated market status, as exists across most of Asia today, to a licensed and overseen status, once regulation begins. Channelisation is easy to understand when held up to the taxation revenue realised from any regulated market – the lower the channelisation percentage, the lower the taxation revenue realised from betting and gaming, period.

If the black market is not effectively removed, or excluded from discovery, consumers will continue to openly engage with it, in much the same way as they did before regulation, aside from black market operators not being able to market themselves across traditional forms of advertising, such as sponsorship of sports teams or upon television ads. Online, however, and across the media predominantly frequented by today’s audiences, the black market exists tangibly and, in some cases, popularly, to the extent they can even drown out the awareness and relevance of licensed, tax-paying sites.


Player Protection

Much as the black market creates instability for licensed operators’ revenues, and consequent unpredictability of tax yield, black market operators that illicitly target regulated markets create issues for individuals and society, primarily among minors and those at risk of gambling-related harm. We are all clear that betting and gaming comprise products that must be offered, operated and consumed responsibly. A system of regulation imposed by law, and executed by experienced, career-professionals across law enforcement and civil service working for the Regulator in any market, is the clear sign that betting and gaming products are not meant for everyone. Regulating a market when there has been little to no public education – not the fault of any regulator, to be clear, since this duty lies with government – is even more challenging for player protection since those at risk of gambling-related harm do not know where to effectively turn when facing a problem, and escaping a spiral of continued, compulsive play is almost impossible when no gambling cessation helpline or tool historically worked to exclude the black market. Since that black market is just a Google search away, the much-vaunted goal of player protection has, to date, been but a hope. All of the provisions of the legislation, the rules from a regulator, and the fines and threats to licensed status upon regulated operators for breaches of protective measures, target one end: the protection of at-risk and vulnerable individuals. This will not happen, in any meaningful way, however, if we tolerate the black market and fail to introduce an adequate provision to allow regulators to monitor, police and enforce the meaning of licensing. Provisions for player protection, such as, for example, self-exclusion, will cease to be effective at the end of a list of licensed sites. An at-risk consumer or minor need simply pick up their smartphone and conduct a swift search to discover dozens, if not hundreds, of unlicensed, black market operators who do not participate in any age verification or know your customer activity; who perform no ID or address checks to prevent money laundering; who share no self-exclusion information between different operators and brands; and, who are, visibly and practically only focused upon one thing: the money. From which they will not make any contribution to tax, good causes, levies for gambling education and cessation, etc. It is all pure profit, after their marketing and operational costs.


The right tool for the sincerely regulated market: YieldSec

Why then do we tolerate the existence of the black market, given its existence does not simply deflate the betting and gaming balloon, but threatens to pop it, altogether? To date, there have been no effective tools to simply allow for practical monitoring, policing and enforcement. Given my commitments as Board Trustee of the GVC Foundation US, a non-profit dedicated to promoting responsible gaming; and, to my work for EPIC, the leading gambling-harm prevention specialists, I am proud to be a part of the team that recently announced YieldSec, the first effective tool to aid regulators and government, in the USA and internationally, to monitor, police and enforce the licensed marketplace for betting and gaming, and remove black-market influence and instability.


The past several months spent realising YieldSec - a product formed from a joint venture between customer experience specialists, A GAME ABOVE, and player protection experts, Beanstalk (the makers of gambling cessation product, GamBan) - have been focused upon building a solution that caters to one essential: providing for a protected, licensed marketplace.


The operation of a sustainable marketplace, with cared-for customers and practically excluded minors and at-risk audiences, whilst raising valuable taxation revenues for society, predictably, is the only way to support our core mission at A GAME ABOVE: the customer experience. Player protection and the operation of a sustainable industry, onshore and subject to regulation, are, in our view, simply facets of the customer experience, overall.


We tolerated the black market, to date, as online betting and gaming, internationally, is a teen-aged, and still maturing industry. The regulators who have had to adapt to the rise and prevalence of online or iGaming have done a great job with the tools they had and were often restricted by what the law permitted them to do, and also prevented them from doing in certain instances. The dual targets all regulators can focus upon with YieldSec alongside their mandate are simple: player protection and tax yield.


Working with government and regulators, YieldSec becomes the catalyst for a truly level, licensed playing field across betting and gaming. With the world’s largest real-time database of black market sites and presence, online, YieldSec transforms blacklist hopes into blocked sites reality and produces sustainable, predictable performance across taxation-raising. The solution additionally provides for sincere player protection since it removes the easy availability of irresponsible and unwelcome, unlicensed sites from everyone, including minors and those struggling with problems caused by gambling-related harm. YieldSec effectively creates a regulatory ring-fence for all licensed and soon-to-be licensed markets, aligning the will of politics and legislation to control the offering, availability, and pervasiveness of betting and gaming, with the reality of monitoring, policing and enforcement.


Dealing with the black market: All-in or Outlaw?

Rather than simply ignore black market operators, it would be wise to suggest a dual strategy for dealing with them: invite them back onshore, in return for unpaid taxes and fines for their historic illicit status, so long as they now go all-in, seek licensing and fully engage with the legal, regulated marketplace; or, outlaw them further, in practical terms, and block their presence, across access to their sites, media mentions, payment processing, social media platform influencers, etc, by way of YieldSec and other tools that regulators and government can now rely upon.


The social and economic consequences should we continue to tolerate the black market in betting and gaming are simple to foresee:

  • declining tax revenues for government and good causes, since unlicensed sites steal taxpayers’ money

  • a reduction in social responsibility and a hollow meaning to “responsible gaming” making any aim of player protection an unrealisable hope for the future

  • reduced revenue growth for operators that did comply with the will of lawmakers and the actions of regulators, and gained licensing, yet face continued unfair competition from offshore poaching

Those are not consequences we need to accept nor should, for the continued benefit to players and taxation that betting and gaming can provide when holistically and sustainably managed by governments, regulators, stakeholders and industry, working together.


You can learn more about protecting the licensed marketplace for betting and gaming at YieldSec.com

#onlinegambling #eiindustrynews #blackmarket #igamingregulation #igamingplayer protection

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