UK Lessons: How Excessive Regulation Can Strengthen Illegal Gambling Markets

Across most countries, the gambling industry inevitably includes both legal and illegal segments. The degree to which shadow operators thrive largely depends on how balanced the regulatory framework is. In theory, effective regulation should give licensed operators a clear advantage over the grey market. In practice, however, achieving that balance has proven far more complex. Even mature jurisdictions such as the United Kingdom are witnessing the growing influence of illegal operators as regulatory pressure on legal businesses intensifies. For emerging markets like Ukraine, these developments offer important lessons in designing a more balanced regulatory system.

Recently, a senior executive from Rank Group — a gambling conglomerate founded in the United Kingdom in the 1930s — warned during an event organized by the British Gambling Council (BGC) that excessive regulatory pressure can unintentionally strengthen illegal operators. According to the executive, each new restriction, tax, or regulatory burden becomes an opportunity for the black market. Additional financial pressure on licensed companies creates competitive advantages for unregulated operators that are not subject to the same obligations.

The current situation in the United Kingdom illustrates this dynamic. The gambling industry faces tax levels approaching 40 percent of profits, strict advertising limitations, and high licensing costs. While these policies aim to protect consumers and ensure responsible gambling, they also increase operational costs for legal companies. Even major corporations find it increasingly difficult to operate under such conditions, while the barriers to entry for new market participants remain extremely high. As a result, many operators may instead seek opportunities in more accessible jurisdictions.

Additional challenges arise from the way financial institutions and digital platforms treat the gambling sector. Traditional banking systems often view gambling transactions as inherently suspicious, regardless of whether the activity is legal or illegal. Paradoxically, licensed operators can face greater scrutiny because their transactions are transparent and easier to track. At the same time, social media platforms frequently fail to distinguish between legal and illegal gambling advertisements. While licensed operators must comply with strict marketing rules, illegal platforms operate without such constraints, often running aggressive and highly visible promotional campaigns.

These conditions create significant challenges for legal operators. Instead of focusing resources on product development and market growth, companies are forced to devote increasing time and capital to regulatory compliance and adaptation. Over time, this dynamic can reduce investment in regulated markets and expand the share of illegal activity within the overall gambling ecosystem.

If a mature market like the United Kingdom — with decades of regulatory experience — faces such difficulties, younger industries must approach regulation with particular caution. Excessive pressure and regulatory uncertainty can place licensed businesses at a competitive disadvantage compared to shadow operators that do not pay taxes, obtain licenses, or follow responsible gaming rules.

For this reason, industry stakeholders emphasize the importance of clear legislation and balanced taxation. Legal operators can serve as strategic partners for governments in gradually reducing the influence of the shadow market through effective regulation and compliance. When regulatory frameworks become overly restrictive, however, they risk achieving the opposite effect — strengthening illegal operators and increasing the amount of revenue that ultimately escapes the state budget.