Complex in nature, in terms of defining when betting is deemed to be illegal, it is often transnational, crossing jurisdictions with different laws and regulations, involves many stakeholders, and is not easy to trace. Additionally, it is often unclear for consumers as to whether a website is legal or not.
Many stakeholders across the sports betting ecosystem work together to combat illegal sports betting and match fixing, and maintain the integrity of sport. This includes some lotteries and sports betting operators, regulators and law enforcement, sports organizations and federations, the Council of Europe, and organizations that monitor sports competitions for suspicious betting patterns, such as the United Lotteries for Integrity in Sports (ULIS) formerly known as Global Lottery Monitoring System (GLMS). The valuable data gathered by ULIS helps betting operators decide whether to modify their offerings, and has been used in investigations into match fixing.
One organization that is involved in combatting illegal sports betting is the Asian Racing Federation (ARF) Council on Anti-Illegal Betting and Related Financial Crime. It was established in 2017 to foster and enhance the international cooperation of horseracing and other sports organizations. The Council works with many of the aforementioned stakeholders, and provides extensive research and publications on the subject.
Martin Purbrick, Chairperson of the ARF Council, set the scene for a webinar around the Council’s Report on The State of Illegal Betting that was released earlier this year.
The panelists included ARF Council members and contributors to the Report: James Porteous, ARF Council Research Head & Due Diligence & Research Manager, HKJC; Tom Chignell, Executive Manager, Racing Integrity and Betting Analysis, HKJC, and Brant Dunshea, Chief Regulatory Officer, British Horseracing Authority (BHA).
The Council works with regulators, authorities for sports and government and intergovernmental agencies, to better combat the threat of illegal betting and other financial crimes in horseracing and other sports.
“The Report provides in-depth research into the current status of illegal betting markets in relation to integrity and describes some of the related threats to racing and other sports. We have seen far greater liquidity injected into horseracing and other sports during the pandemic. This in itself has imposed greater integrity risks because risk levels go up when liquidity does especially into lower-level competitions in racing and other sports which are not as closely monitored and where participants are lower paid – one of the key risk areas,” said Purbrick.
An evolving global illegal betting market
James Porteous explained the Report’s key findings and how the illegal betting market has evolved in the last five years.
“We believe this is the most comprehensive overview of an issue which is still too little understood not only by racing and other sports, but governments, law enforcement and other key stakeholders, which means anyone who loves sport and anyone who does not like organized crime and the corruption of sport. The Report seeks to inform readers about what illegal betting is, why it is bad, why they should care about it.”
The research considered around 530 websites from 61 global jurisdictions, offering a broad sample of the global market. Key findings included:
- Two-thirds of websites considered were not fully licensed and regulated (ie illegal in many jurisdictions).
- Illegal market is growing faster than the legal (+64% vs 37%)
- Horse racing occurred on 36% websites with ARF racing on 82% of these
- Football, basketball and tennis most prevalent sports. E-sports rapidly growing 63% of all websites
- Cryptocurrencies accepted by 24% or a quarter of websites and 63% or two-thirds were unlicensed
- 73% of websites relied on third-party software and 42% used mirror websites to evade regulatory attention
“The data confirmed what we had been seeing of the blurred lines between what is legal and what is illegal. Technology is behind the rapid advances of the last five years. Online gambling quickly adopts new technology. This is even more pronounced by operators who are not slowed down by any regulatory oversight. Cryptocurrencies were not on the radar five years ago.”
It is well known that the definition of illegal betting is a grey area, given the different laws and regulation enforcement in different jurisdictions. For instance, they may be:
- Licensed and regulated: regulated by the jurisdiction in which they are licensed to take bets
- Licensed but under regulated (grey market): operators with licenses from certain jurisdictions but are under regulated since they take bets from persons located outside of these jurisdictions. They have licenses from some jurisdictions but take bets from all over the world, regardless of if they are licensed in all and regardless of prevailing legality in that jurisdiction.
- Unlicensed and unregulated: operators with no license. Such operations are often run by organized crime.
The Report focused on where the point of sale took place and whether the operator had a license in that location, meaning that the above definitions 2 and 3 (representing 61% of the websites) were in effect considered to be illegal.
All websites saw significant growth from 2019-2021 and illegal online betting grew faster than legal online betting. There was 64% growth to unlicensed and unregulated betting websites compared to 36% to licensed and regulated betting websites which have strict license conditions and gambling regulations on the number of sports and types of bets. Illegal operators, on the other hand, had better prices, products, promotions, less operating costs and no regulation or taxes.
“A key point for regulators to understand is that well-regulated licensed operators need some flexibility to compete on a more level playing field. An overregulated and licensed sector will drive people to the illegal market.”
Seventy percent of licensed websites accepted credit cards, with credit betting the norm in illegal markets, and cryptocurrencies prevalent. An important development is the growth of cryptocurrencies. These appeal to bettors because payments process rapidly and are difficult for authorities to trace and attractive to illegal bookmakers who can easily offshore their profits, pay staff anonymously, mix funds with proceeds of crime and hide true nature of their activities.
Porteous concluded that key stakeholders in sport, government and media needed to understand these issues, noting that licensed and regulated operators brought enormous benefits to society through tax, payments to sport, employment and safeguards in place on their platforms whereas the under regulated and unregulated markets did not. They often directly funded organized crime and other criminality and facilitated problem gambling while corrupting the integrity of racing and other sports.
The explosion of white label operators
Tom Chignell expanded on the theme of white label betting operators and how they have supported the growth of illegal markets while threatening the integrity of horse racing and other sports.
It is easier than ever to set up a betting website, using off the shelf software, which provides the required functions of odds-making and risk management, live sports data feeds, live video streaming, customer relationship management, technical support and payment processing.
“Online betting through white labelling is the equivalent of a major car manufacturer building the vehicle, but allowing another company to put its logo and brand on it for sale. The supplier provides all the technology and website content, while the operator’s role is limited to branding and marketing and recruiting bettors.”
The Report noted that at least 73% of betting websites use one or more third party software providers and this is a problem when betting suppliers service unregulated operators supporting unregulated and illegal betting markets.
White label betting operators enter a partnership with a white label provider and operate under the provider’s license, avoiding the need to obtain their own license, thus circumventing regulation.
This type of arrangement provides some legitimacy to operators typically in Asia (where so often betting is illegal) by allowing them to present themselves as licensed and well-respected by overseas jurisdictions. It provides a way to promote their “credible” brand in Asia, for instance, by associating themselves with major European sports teams and leagues, and advertising in Chinese, Thai, Indonesian, Vietnamese and other Asian languages even though their products are illegal in most of Asia.
“Asian facing white label operators rely heavily on agents to recruit customers, facilitate account access and settle payments. This layered set up significantly complicates audit trails for race and match fixing investigations.”
- Chignell also highlighted key issues such as the lack of clear ownership of white label betting operators, who do not provide sufficient problem gambling controls, consumer protection or anti money laundering (AML) controls and that such betting sites threaten the integrity of sports by:
- Not reporting suspicious betting activity or breaches of the racing or sports rules
- Not sharing information on customers suspected of involvement in corruption
- Failing to establish sufficient KYC processes
- Allowing gamblers to bet with anonymity and via crypto currency
- Due to use of agents, the white label betting operators themselves do not know their customers
The vital role of monitoring sports betting
Brant Dunshea, Chief Regulatory Officer, British Horseracing Authority (BHA) talked about the unique and interdependent relationship of horse racing and betting and how racing has long generated revenue which supports the industry, provides taxes which directly or indirectly assist in funding other sectors in society.
“The State of Illegal Betting Report underscores how important monitoring of horse racing and other sports is. The need to properly regulate activities around betting and racing has a long history, is well established in practice, and includes centuries of case law. This has enabled those responsible for this important task, to develop and evolve processes and systems for the wagering market.”
Dunshea noted that BHA and numerous other registered racing bodies, such as HKJC and Racing Victoria in Australia, have developed internal systems and teams to monitor betting on their own racing and support other jurisdictions in this regard. Racing has a long history of controlling and managing its data, wagering and media rights, which enables the sport to have greater control over where and who offers propositions on betting products.
“As we have heard, changes to the markets in recent years have made this far more challenging and complex. Where legal operators are entitled to offer products for wagering purposes on our sport, information and intelligence is shared with them to monitor and mitigate risk. If wrongdoing is detected, we will prosecute under the rules of racing or refer to law enforcement or other relevant agencies for investigation.”
Dunshea called attention to the limited scope racing authorities have to act on any wrongdoing, where their products are offered by those operating in what the State of Illegal Betting Report defines as licensed and unregulated environments. The situation is complex when lay bets are made through agents and white label operators which hinders the work of the monitoring team of under or unregulated illegal betting markets.
“We believe in racing we must continue to evolve to adapt to the changes of the market and I believe racing and sports can play a very important role in helping others unfamiliar with these challenges to understand how the market has changed, through information sessions and publications such as the Status of Illegal Betting Report, produced by the ARF Council.”
A final thought
When asked what the greatest concerns of the illegal betting market were, the panelists concluded:
Dunshea: “We don’t fully understand the extent of what is happening in the market and that is a challenge for us. This work across Asia is indicative of what is happening in other parts of the world. In Europe we’ve begun looking for funding for additional work to better understand the nature of under and unregulated illegal market in Europe and its impact on racing and other sports. In terms of the direct challenge, it’s the traditional bet monitoring systems and functions that were built for an age that has to a certain extent passed us by.
We must now develop those systems to better deal with the new threats and challenges and continue to maintain ownership of that investment internally. No matter what sport, if you maintain that control of the monitoring function, it means you are fulfilling your responsibility as a proper regulator.”
Chignell: “I have been at the HKJC for seven years, during which I have seen an explosion of unregulated or lightly regulated racing betting operators. It’s very hard to keep up with bet monitoring, given the market size. For instance, the illegal market of one betting exchange is as big if not bigger than the HKJC’s turnover of one billion, plus every race meeting. It is imperative for us to build an intelligence network and work with other operators and stakeholders to try to keep ahead of the game.”
Porteous: “Illegal betting is the number one threat to the integrity of sports, not just racing, football, badminton, tennis, any sport. If you love sport, you should be concerned about this issue. If your sport starts being corrupted or is perceived as being so, people will lose interest and no longer want to participate. Attendance and revenues will go down and it will be more vulnerable to corruption, so becoming a vicious cycle. There have been many well documented instances of this across the history of sport globally. The sheer scale and nature of illegal markets is very hard for people not immersed in it like me to understand, but they need to if they are involved in sport.”