Dark matter: Is the black market a legitimate or overblown danger in the UK?

Saturday afternoon is when UK racing fans and casual punters alike tend to reach for their smartphones and tap a bookmaker’s app to place a bet on the equestrian action. Yet, while Saturday is always the sport’s busiest day of the week – with the more high-profile races screened live on ITV – there is a cohort of higher-staking gamblers who instead fire up WhatsApp to place their bets in the shadowy world of illegal bookmaking. Professional gambler and racing tipster Lee Keys falls into this category after he hooked up with private layers through word of mouth. “You’ll usually find another pro punter who will tell you this is where he is getting on. I can’t get fortunes on, but I can do it so that I have a nice living,” he tells EGR Intel by phone. Once Keys has pored over the form and identified a horse he wants to back, he will simply type his selection, the current odds and his requested stake into the messaging service, and the person on the other end will either lay the bet in full or hedge it off elsewhere. Bets are always struck on credit, although collecting any winnings isn’t as speedy and convenient as withdrawals with licensed online bookmakers or the exchanges. “The thing with getting paid is it is a lot slower,” Keys acknowledges. “I’ll be honest, I’m owed quite a lot of money at the moment, but it comes in dribs and drabs. It could be somebody dropping cash off at your house or it could be somebody dropping a big pile of money in a PayPal account.” But is he ever concerned about not being paid money he his owed? “They are not going to rip me off and say they aren’t going to pay me,” he responds. “I’m 100% confident about that – they are quite established, wealthy people.” Fellow pro punter Neil Channing says betting in this way is easily accessible if you mix in the right circles. “I could literally go to my phone and find at least a dozen people who if I said, ‘Could you set me up with an illegal WhatsApp betting account?’ they would have three or four recommendations for different ones.” The nature of this form of clandestine gambling makes it almost impossible for the UK Gambling Commission (UKGC) and the police to crack down on, Channing adds. “When they used to clamp down on people laying bets in public houses, it was easy. They just went to rural public houses where they heard it was going on and did a sting operation by placing a few bets with the illegal bookmaker and he’d be up in court within a few weeks. In the digital age of WhatsApp, it’s a lot harder than it was 10 years ago to do anything about it.”

Papers, please

One reason you hear why punters are straying outside the legal realm is because of stringent affordability checks introduced by operators to tackle gambling-related harm. Either these individuals are unable to provide a bookmaker with sufficient documentation to prove they have the income and/or funds to bet to their preferred staking levels, or they simply don’t wish to hand over this confidential information to a betting company. In fact, a YouGov survey on behalf of the Betting and Gaming Council (BGC)  published in January revealed that fewer than one in five (16%) of those who bet would be willing to let betting firms access their bank accounts or pay slips in order to have a flutter. Meanwhile, 59% said they felt government-imposed checks on whether customers can afford to place a bet would lead to a large or substantial risk of customers switching to the black market. Situated on Campden Hill Road in London’s Notting Hill is the head office of Fitzdares, an exclusive bookmaker that also operates a private members club in Mayfair. By attracting a more affluent clientele than your typical recreational-focused betting outfit, the Fitzdares team has seen first-hand how affordability checks, which some customers deem unnecessary and intrusive, have driven some to seek out alternative options. William Woodhams, the firm’s flamboyant CEO, says: “I always thought it was all rubbish, people will still bet in the UK, it’s all just scaremongering. And now it’s not. It has really got to the stage where high-staking punters, who have completely legitimate business and [can prove] affordability, are taking their business to less reputable bookmakers who are, in part, taking that business to Montenegro or the Caribbean. So, it’s happening.” And is he hearing of high-staking gamblers betting via WhatsApp with underground bookies? “How anyone could touch that with a bargepole completely blows my mind,” Woodhams responds. “But yes, it’s definitely happening. These ‘bookies’ are cropping up and they lare trying to hedge with us, so they are de-risking their book. I can guarantee you that if you get a treble land for, say, £80k, that WhatsApp group is going to vanish, fast. I mean it’s just unregulated.” Channing says UK punters betting sizeable sums on football often put their money through the highly liquid markets in the Far East, when 10 years ago they might have used the exchanges. “If you are betting football at £1,000 a game, it’s very easy to find someone who will set you up with an Asian account or an Asian agent [to get the best price]. I know loads of people who do all their football like that. They can get credit, they get to shop around for prices, and [pay] no premium charge [on Betfair]. It’s almost 100% books and no commission.” It’s a similar situation with US sports, he says. “All the syndicates I know, they do all their American football and American sports [bets] abroad; very little of that goes through the English market […] that’s a lot of money going out of the country. But that’s happening already, I don’t think affordability is going to change that.”

The scale of the problem

Further research, this time conducted by consultancy PwC on behalf of the BGC and published last year, suggested UK gamblers using sites not licensed by the UKGC more than doubled from 210,000 in 2018/19 to 460,000 in 2020. This equates to 4.5% of UK online gamblers. The amount staked with unlicensed operators jumped from £1.4bn to £2.8bn in the same period, PwC’s 66-page report revealed. However, the CEO of the UKGC at the time, Neil McArthur, told MPs in January 2021 that the report was “not consistent with the intelligence picture”, that the findings “may be being exaggerated” and it lacked any evidence to back up a rise in the use of unlicensed sites. Nevertheless, the BGC insists the government should sit up and take notice. “It’s an alarming figure and as bad as we feared,” asserts chief executive Michael Dugher. “We’ve been warning about this trend for some time. There is anecdotal evidence that there is a trend in the UK and globally of customers increasingly going to the unsafe, unregulated black market. And this really needs to be a wake-up call for all of us, particularly on the eve of the government’s white paper.” This long-awaited white paper laying out the recommendations for an overhaul to the Gambling Act 2005 is expected this spring, possibly May. While UK regulated operators insist they welcome the review to update laws written before smartphones existed – provided it’s evidence-based – they believe severe restrictions on advertising and/or caps on spending could have a detrimental effect on the licensed sector. Indeed, the £100 monthly limit before affordability checks kick in, mooted by cross-party think tank the Social Market Foundation in 2020, was roundly criticised. Peter Ling, founder of the Smart Betting Club, an online service which rates tipsters, says: “I firmly believe that if stringent affordability and deposit limits are put in place and no improvements made to the regulation of the bookmaking sector, the black market will grow further as there will only be greater demand from a wider group of customers in what it can offer.” There was some cause for optimism in December, though, when Gambling Minister Chris Philp told GambleAware’s annual conference that demanding bank statements from people betting more than £100 a month would be “unwelcome, disruptive and disproportionate”. The upshot could be that any affordability threshold is set considerably higher, perhaps £1,000 a month. Or it ends up applying to casino games only and sports betting is exempted. Quite frankly, we just don’t know at this stage.

Change the channel

H2 Gambling Capital puts the channelisation rate for the UK at 98% due to its “highly liberal open market model” compared with the European average of 75%. In Italy, where there is a blanket ban on gambling advertising, H2 Gambling Capital says channelisation is still 95%, although the BGC says its data from PwC puts the figure far lower at just 77%. “There’s no reason at all why that couldn’t be replicated in the UK,” says Dugher, referencing Italy. Meanwhile, PwC says black-market gaming accounts for 57% of all money staked in France and 20% in Spain. “The lessons from overseas are very, very clear: if you don’t get those changes right, you will drive traffic to the black market,” says Dugher. “The evidence is stark, compelling and overwhelming internationally. So, this is not an argument against further changes, it’s an argument for getting those changes right. The government needs to tread extremely carefully.” Just searching on Google, it is very easy to find offshore operators and affiliates directing players to sites not licensed by the UKGC. What’s more, if you search for ‘GAMSTOP’, the national self-exclusion scheme, on the first two pages pops up three affiliate sites promoting non-GAMSTOP sites. In other words, if you have self-excluded with a UK-licensed betting operator, you can still find a vast array of obscure gambling operators not licensed by the UKGC. So, probably no player protections and safer gambling tools, no interventions and no questions asked, including around affordability. “Whether it’s WhatsApp groups or people just using [unlicensed] websites, there has been a vast technological transformation in recent years,” Dugher says. “In the regulated sector we can use technology, the algorithms, the account-based play and the fact that we know so much more about a customer to track and monitor their spend and their play. We can be alert to a whole host of potential markers of harm and then make interventions to deal with that. So, in the regulated sector, technology can be our friend.” Conversely, Dugher says technology is “creating huge challenges” when it comes to illegal gambling. “The way to tackle it is not simply by more and better enforcement. It’s about making sure you don’t do anything that essentially incentivises people to go and play in an unregulated fashion.” Some say the UKGC is chronically underfunded to prevent leakage to the black market besides keeping the legal industry in check. From its HQ in Birmingham, the regulator has to police a land-based sector comprising of more than 150 casinos, around 650 bingo premises, 7,700 betting shops and 1,600 licensed arcades. Then there are the 700 active remote licensees. The UKGC does this on a budget of around £19m a year, mostly made up of operators’ annual licence fees. Therefore, £19m to license and oversee an industry worth more than £4bn per year to the Exchequer.

I could literally go to my phone and find at least a dozen people who if I said, ‘Could you set me up with an illegal WhatsApp betting account?’ they would have three or four recommendations for different ones – Neil Channing, professional punter

Six months ago, Tim Miller, executive director of the UKGC, said the regulator was “alive” to the threat of the black market and acknowledged the need to be “increasingly fleet of foot” when dealing with emerging risks. The UKGC says it takes enforcement action to block or shut down unlicensed sites targeting Britons, with 248 unlicensed remote operators subject to enforcement action between 2015 and 2019. Yet, it can be a whack-a-mole scenario. These sites will simply email their customers a new URL once they are back up and running and it is effectively business as usual. As for the illicit bookmakers taking bets on credit via messaging apps, this is an even harder activity to clamp down on. In Channing’s view, it is not in the interest of the UKGC to highlight a burgeoning black market. “If you are the Gambling Commission saying you are under-resourced, you probably don’t want to advertise that you are a bit rubbish at dealing with an explosion in black market gambling. You probably want to play it down.”

A financial black hole

One knock-on effect of affordability checks which some operators are struggling to undertake in a timely manner (see recent Trustpilot reviews of operators and exchanges to gauge the scale of the uproar), along with restrictions or the closing of accounts encouraging bettors to go down the unlicensed route, is the impact on British horseracing. The sport is partly funded by the bookmakers by way of a 10% levy on their gross profits from bets on racing (Levy Board income for the year to 31 March 2021 was £82m, almost £16m below the previous year due to suspension of racing caused by the pandemic). The levy accounted for 35% of prize money in 2019. Punters turning their backs on racing would leave an inevitable black hole in finances. Indeed, the sport has previously claimed a £100 affordability threshold would mean a loss of revenue amounting to £60m a year as bettors switch to black market sites and underground bookies. “The people that are losing out the most, in my opinion, isn’t the tax man – it’s UK racing,” Woodhams of Fitzdares remarks. “It’s a two-fold problem: those afraid to share documents for whatever reason, so they are going to play abroad with that money. So yes, it’s [a loss to] the tax man but in real terms, it’s a massive loss to prize money in the UK or better facilities [at courses]. It will just slowly but surely chip away at UK racing.” He adds: “When you’re playing abroad, because these companies aren’t having to pay any turnover on data or levy or tax, they can build a 20% rebate into their business model and still make money.” The hard truth is some people who regularly bet on racing will simply give up and find another hobby. If that’s not already happening. Channing says the people being driven away – either to illegal options or giving up altogether – are those who “pay for racing”, as he puts it. “People who subscribe to Racing TV for £300 a year, buy the Racing Post at £3.90 a day, which is £1,200 a year. If you are doing those two things, you are probably betting £50 or £100 when you have a bet on the Grand National, the Derby or the bigger handicaps. A lot of those people are semi-retired and don’t have large incomes, they have savings but aren’t going to pass the affordability checks.” The US has learned that once the genie is out when it comes to the black market, it’s not easy to force it back into the bottle. Likewise, illegal gambling is deeply entrenched in many Asian countries and run by organised crime groups. While some accuse UK operators of exaggerating the threat to stave off tighter regulations, to say it doesn’t exist – even in a liberal market like the UK – would be wrong. A boss of a UK-licensed bookmaker, who wishes to remain anonymous, told EGR Intel via a Twitter DM: “Be assured that lots of money will be gambled with offshore/black market/unlicensed bookies instead. This has already started, and people are earning lots of money out of it and not paying tax.” As for Keys, he has no intention of giving up using his WhatsApp bookies, and he bet using this method for the four-day Cheltenham Festival, the highlight of the National Hunt season. “If you deprive people of doing something they enjoy, they will look elsewhere. History tells us that with prohibition and the drinking [in 1920s America],” he explains. Moreover, Keys sees history repeating itself. “The underground casinos in basements, it’ll all come back. We are going full circle […] going back to the ’80s and ’90s with the bookmaker in the pub sat in the corner taking bets off the punters – but obviously using technology nowadays.”