If you want control of the entire market, there are options on the table. The pragmatic model recognises there is a ‘hard criminal’ element
that you do not want in your market, and, at the same time there’s a soft criminality that you may, likely will, need to work with – as they’re much more malleable than the hard variety. Vali describes them as: “gangsters without guns.”
“My initial view of the market, when we launched Yield Sec, was that our data was revealing the ‘Great Illegal Gambling Robbery,’” explains Vali. “We had a group of soft criminals, motivated by greed and not fearing any legal consequences, that presented a near risk to the gaming industry. Tese were and are gaming executives who make more of their money from illegal activity than legal gambling, and cloak themselves in definitions of disguise, claiming “grey market operations”, for example. Let’s cut to the facts here: Grey markets don’t exist anymore. We have online gambling regulation and legislation in most jurisdictions on Earth today – there are more regulated marketplaces than not. Tis has simply become a legal versus illegal issue, or black versus white for those who still prefer a colour chart for their criminality. I started using the analogy of the iceberg simply to demonstrate the precariousness of all online gambling marketplaces today – that bright, white cap of legal gambling is, invariably, afloat in a sea of criminality, in every online jurisdiction.”
Te problem with soft criminality/grey market activity is that it creates an unequal marketplace. Te legal market operates with restrictions to its offers, advertising, profits and market reach. Not only that, but the combined total marketplace activities of white, grey and black, or legal and illegal, creates the misconception that the licensed industry is solely responsible for all gambling activity in the market, when it’s only answerable for a fraction of market revenue. And so, when market share for licensed gaming falls below 50 per cent, and in markets such as Hungary, below 10 per cent, the legal market is unable to produce sustainable revenues, consequent taxation, responsible gambling funding, let alone produce or maintain anything like projected profitability and, if relevant, publicly-traded market cap - a scenario we’re currently seeing in multiple gambling jurisdictions, not least of which is the United States.
“While the near risk is problematic, the far risk is much, much worse,” warns Vali. “All of the unenforced against illegal gambling activity we have today, and the reluctance to sometimes simply deal with illegal gambling since some feel it has been misused as “a distraction” to avoid further regulation by legal industry lobbying groups and trade bodies, is inviting a terrible destiny: a future where organised crime and transnational criminal gangs are interested in online gambling not just for the money laundering conduit, but for overall control of the gambling ecosystem and audience, period. Tis is not some far-off fable I am suggesting – this is happening right now, and one only needs to detail a few legal, regulatory and marketplace failures, now visible on every continent, to see that the far risk has clearly and presently
P96. WIRE / PULSE / INSIGHT / REPORTS
arrived: activity by Sicilian N’drangheta Mafia in Malta, Triads in the Philippines and Tailand, Narco Cartels in Mexico and northern LATAM, are but a few examples of recent crossovers from near to far risk in our online gambling marketplaces.
In Vali’s opinion, a marketplace like Hungary has two options:
Option 1: Channelise the legal brands. Ruthlessly efficient monitoring, policing and enforcement must be implemented to have any sense of a contained, controlled and regulated marketplace. Tis option has to be implemented prior to, and throughout, any consideration of Option 2.
Option 2: Liberalise the marketplace. Allow more licencees in, potentially embracing amnesty conditions for previously illegal operators
Given the traffic and revenue dominance of illegal brands, inviting them in for licensing with amnesty and/or local brand partnership conditions must be considered. Marketplace access deals can fail, as we’ve seen with Tribal Gaming operators in the US, but that’s because the black market was not enforced against, first. Should Hungary wish to compromise with current and historic illegal brands, given their marketplace status today, the right climate is achievable. However, no commercially intelligent deal will be possible without some level of activated enforcement against the black market, first. Only when things are difficult for illegal entrants, will they truly feel like valuing local partners, and the government, commercially and practically.
Lobbying the government for umbrella licensing is also not without its risks. Even with the right commercial climate for partner deals, the public, politicians and government will require convincing to allow what are, effectively and literally, thieves today to enter the marketplace, via payment and revenue sharing to a local partner for that umbrella license privilege. Legal change and deal negotiation would be needed, during which some illegals could continue to earn money and market share whilst wasting time. A trend that “made hay while the sun shone” for many brands in Germany and the Netherlands, as they played footsie with their potential legalisation, only to never actually submit licensing paperwork, in the end.
GREY MARKET AND SOFT CRIMINALS
Searches for ‘Bet365’ in Switzerland are the most popular gambling term in that country. More than ‘casino,’ more than ‘soccer betting’ or even ‘Messi’ during the World Cup. ‘Bet365’ is the most searched for betting term in
Switzerland and number two is ‘Bet 365’ with the space between the words included.
“Te audience is saying they want Bet365. If the brand is that popular, surely a more optimal outcome is to acknowledge that market presence,” says Vali. “We need to find pragmatic ways to recognise the most popular brands in the market. Acknowledge that they have licences in other markets – and pose the question: why don’t we discuss legal operations in our market? Agree a deal to provide ‘$X’ amount in taxes for the first five years, for example, and compel them to work with the existing licensed brands in the local market or simply be incentivised to acquire those local brands through M&A. Hardly a revolutionary or surprising suggestion given that local expertise consolidation is a cornerstone of the global iGaming business dynamics.”
If you want control of the entire market, there are options on the table. Te pragmatic model recognises there is a ‘hard criminal’ element that you do not want in your market, and, at the same time there’s a soft criminality that you may, likely will, need to work with – as they’re much more malleable than the hard variety. Vali describes them as: “gangsters without guns.” Tey would potentially pay years of back taxes to have a clean legal status – which is exactly what the PokerStars precedent in the USA established.
“Te vast majority of the legacy brands did not set up in business to be criminals - that’s not what they are in their nature - but they’re branded this way because they’re taking illegal revenue,” states Vali. “Given the threat of a soft/hard criminality crossover, we simply have to find practical ways out of a scenario that is inviting too much attention and interest from what we used to consider the “far risk” – from organised crime entering iGaming not simply for money laundering opportunities, but for operational control.
“If you create the right monitor, police and enforce environment, using a platform like Yield Sec to help achieve channelisation critical mass, governments and regulators can invite legacy black market brands back into the licensed spectrum and unlock the payment of back taxes, fines and “special conditions” to bring the marketplace to a position of positive channelisation, where online gambling activity can truly benefit local commerce and community. Bet365’s U-turn in Hungary sets a precedent: Tey’re demonstrating risk aversion in Hungary, and I think there’s a conversation to be had because of this. Ignoring it is, I think, an opportunity that could be missed. Tat decision to leave Hungary is seismic: Bet365 is a brand that has rarely left a marketplace, but now, all of a sudden, they voluntarily step out of Hungary. Why leave a marketplace in which you’re so dominant and in which the consumers are actively looking for you, as Yield Sec audience monitoring demonstrates?”
BACK TO THE START
If you want control of a marketplace, legal gambling must replace and prevent illegal gambling. Talk about protecting citizens is a corollary to the actual issue. Get rid of crime and
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