Regulatory Evolution: The 3 Stages of Global iGaming Regulation

Written By:

Ismail Vali, Chief Product & Marketing Officer for A GAME and Special Advisor to Yield

The checklist

At the inception of the internet, the “WWW” abbreviation promised much to many businesses regarding the global potential for their products and services across this new distribution channel. The worldwide web served almost as an answer to every potential question about how to run a low-overhead business model to the widest potential audience.

In little more than 20 years this has changed across most industries, but in particular for betting and gaming.

Across the business today, one can identify a checklist of questions for a licensed operator seeking to enter any one specific jurisdiction, since simply being online no longer means being commercially available and viable across the internet, legally or practically:

a) Regulation: Into which of the 3 regulatory stages does your target jurisdiction fall?

b) Platform & products: Do you have the platform to manage players, and the supply of legally-permissible product verticals, for each target territory?

c) Politics & social responsibility: How dynamic and subject to change is the regulation in each target market?

d) Payments: Getting to the revenue and getting winnings back to customers, keenly aware of taxation, KYC and AML restrictions

e) Unique selling point: What USP can your brand claim? Multi-product offerings are now standard across the industry, few single product specialists are left, and USPs are, generally, today, created through a mixture of brand, media budgets and partnerships, content and affiliate relationships, and customer offers

f) The supply chain: Odds platforms, data rights and feeds, risk and liability management, live streaming content, compliance, to name a few, are now part of an essential pre-match and in-play sportsbook phenomenon and a margin-reducing reality for operators

g) Share of wallet: How reliably, and to what extent, can the cross-sell from one product to many work, given we are competing for users’ time and attention, as well as money, versus entertainment aggregators like Google, Apple, Disney+ and Netflix?

The three stages

When online betting and gaming began, circa 1996, there were no regulatory nor legal rules specific to the industry. Over time, successive jurisdictions have sought to curtail and control it, to either protect existing incumbent monopolies or to target online gaming specifically for two key reasons: taxation and player protection.

Nearly all countries implementing online gaming controls, and a legal marketplace, have, however, suffered tax yield well below what they projected before creating the licensed market. In short, not all the business that exists online will migrate to legal, compliant and taxed online business after the legislative change.

The online betting and gaming industry is, today, split over three states of regulatory existence, internationally:

1) Pre-Regulated Market:

No specific laws exist in the market concerning online betting and gaming, chiefly concerning licensing, taxation and regulation. As such, there is no black or white market for online betting and gaming in such a territory – the market is permissible, both legally and practically, but all entrants acknowledge some potential legal risk concerning their future ability to enter the market if they choose to offer services in this pre-regulatory state.

Many Asian and Middle Eastern markets are in the pre-regulated state owing to religious and cultural norms around the “forbidden” nature of gambling – which does not mean it’s unavailable, however, by any means.

2) Regulating Market:

In the process of drafting and enabling legislation and taxation: to varying extents, these markets may be labelled "grey" if they have little to no policing or enforcement ability.

Germany, for example, is in this state presently, having announced a path to a protected market with licensing and taxation planned for 2021. Operating in a regulating market typically carries clear risk, most notably a possible inability to gain licensing due to so-called “bad actor” legal clauses within future license conditions – if you remain in a market that has announced regulation is coming soon, you run the risk of facing a “cool-off” period when licensing begins or, in some cases, could be excluded altogether.

3) Regulated Market:

A market featuring licensing and taxation, with policing and enforcement, to date, typically only against licensed operators.

The UK would be a prime example, and even in this most mature of licensed, taxed and regulated online gaming markets, the present government have made very clear they are about to embark on fundamental change across today’s business.

The USA is worthy of separate explanation: quite simply, it is, today, and for some time to come, a patchwork quilt of several States that have regulated, or are about to - and dozens more that are in the process of dealing with the huge escape of untaxed revenue to offshore, illicit, unregulated sites that have targeted the US audience for betting and gaming products from well before the internet era. Telephony presented a similar issue from the 1950s onwards with bets being “called across” State lines to reach acceptance and placement in Nevada, where sportsbooks were legal.

Presently the USA features 4 legal States for casino, poker and sports betting, and 20 States (including the previously mentioned 4) that have legalised sports betting, with varying differences around in-person account opening, online vs retail-only access, etc.

Australia, similarly, is a market in a state of flux, with legalised sports betting (pre-match only), but entirely pre-regulation for online casino, and actually under a ban covering online poker since 2017.

Old vs New Worlds, Online

Across the 3 stages, there is a keen split between markets that regulated some time ago, and are maturing, and markets where legality is changing and the regulated, taxed marketplace has just begun.

Between Europe and the USA, in particular, one can witness this divide each financial quarter: all of the good news for publicly-traded gaming companies comes courtesy of the USA, and all of the “industry in crisis” commentary comes care of individual European jurisdictions.

Alun Bowden, a senior consultant for Eilers & Krejcik Gaming, wrote in March 2020 (Eilers & Krejcik Gaming: Euro 2025 Outlook) about six factors creating a gathering storm for betting and gaming in Europe:

Revenue: Slowing growth

Regulation: Higher barriers to entry

Scale: Being redefined

“The Death of Fun”: Forgetting the player

Regulation: Country-by-country fragmentation

Audience: Changing tastes

None of these – except the redefinition of scale - could easily be levelled at the burgeoning US-market, but an important factor needs to be borne in mind: shifting customers away from the existing, entrenched illegal marketplace that has been servicing customers throughout the prohibition period since 2006’s UIGEA (Unlawful Internet Gaming Enforcement Act) which forced the withdrawal of all publicly-traded iGaming firms from the USA.

Even in what is perceived today as “new markets”, like the USA and LATAM, the threat from the pervasive black market is ever present and has been over many years. What we are witnessing now, globally, is the duality of our industry across white and black markets, not just in newly-legal jurisdictions, like America, but in mature European territories like France and the UK, where the changing focus of regulation – particularly where it impacts product offering and player experience - is potentially seeding new black market growth on an insidious, local-first basis.

The impact upon players, especially for those who require protection, and the theft of taxation revenue are the core problems for government and regulator. For the licensed industry, the difference between licensed and illegal GGR is a target to be narrowed in every marketplace. Leaving it to widen further, in favour of the black market, could create operational sustainability issues and marketplace instability for years to come.

You can learn more about protecting the licensed marketplace for betting and gaming at Yield