UK Experience Suggests That Regulation Crimps Black Market Online Poker Sites
The UK has seen the prevalence of unregulated online gambling diminish in the months following the introduction of a well-regarded regulatory scheme.
That’s according to a recently-released report from the UK Gambling Commission – “Annual Report & Accounts” for 2014-2015, which provides a sweeping overview of the activities of the UKGC.
Included in the report is a definitive assessment of the status quo regarding online gambling consumption in the UK post-regulation. Excerpt:
As far as unlicensed activity is concerned, we have found no evidence of the threatened move underground or emergence on any scale of illegal websites targeting Britain. Of the small number of illegal operators identified, some responded immediately to our request to stop operating, while others have been cut off from accessing the British market by the main payment providers and advertising platforms.
That success has underpinned what the UKGC regards as a broader win for regulation in the first full year of the new approach:
Importantly, this means that we now regulate nearly 100% of the domestic remote market instead of less than 15% before the new legislation came into force. And unlike the offshore jurisdictions, we are now able to use our information and understanding of non-remote gambling activities, provided (in volume terms) to a very great extent by the same licensees, to regulate more effectively in a world of cross-selling, common wallets and complex supply and marketing arrangements.
Can the UK template be repeated?
There are some questions regarding how universal the experience of the UK really is. As Poker Industry Pro recently noted, both France and Italy have struggled to reduce the prevalence of unregulated sites in their markets.
The difference in the two stories may come down to the weight of regulation. In the UK, the POC tax rate of 15% is significant, but not unbearable. And the UK has taken a so-called “light touch” approach to licensing and regulation (without sacrificing proper consumer protections).
Contrast that to France and Italy, which both have notoriously high tax rates for online gambling and regulatory structures that have proven at times counterproductive to the health and stability of the market.
It’s also worth noting that the UK market is incredibly valuable across all verticals. The upshot of that value is that several deep-pocketed, multi-billion dollar corporations (e.g., 888, Amaya, bet365, William Hill, betfair) are willing to operate on thin margins in the UK to gain share, so the cost of regulation and taxation is less likely to be felt by the average UK player at a regulated site.
This effectively closes the gap between regulated sites and unregulated sites from the consumer point of view, lessening the chance that consumers will choose unregulated sites based on promotional value or other concerns related to pricing.
Lessons for states in the U.S.
There are two critical lessons for U.S. states like California that are considering regulation from the UK experience:
- Regulation can shut out unlicensed operators (something NJ and NV have witnessed first hand), but only if
- Regulation and the accompanying taxation reflect sound policy goals instead of short-term political goals.
These lessons are especially germane for states like Pennsylvania, where lawmakers have floated what we believe to be absurdly high tax rates in some online gambling proposals – tax rates that would undermine the ability of the state to enjoy the most valuable benefits of regulation from a consumer perspective.
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