Regulation and gaming: don't defeat the purpose

Juan Espinosa and Carlos Hernández Rivera, former General Directors for Gambling Regulation in Spain, explain that when it comes to tackling the growing gambling black market, balanced and proportionate regulation pays off
Credit Adobe Stock

Regulation – or the implementation of a given policy via subsequent rules – is different from policy, let alone politics. If policy aims at transforming a given political vision into concrete goals, regulation makes sure to bring about outcomes. This task is not always straightforward. Regulatory environments are systems made up of highly interrelated elements, which impact on reality. Touch one element, the rest reacts and compensates.

Betting and gaming fit that bill perfectly. Undoubtedly, one of the priorities for the public when it comes to regulation, is protection, whether of youngsters, vulnerable groups, or consumers at large. This goal is, dare we bluntly say, non-negotiable. However, we know for a fact that overly prescriptive, disproportionate regulatory stances can be detrimental to the end outcome. We will try to explain it through the relationship between the regulated vs unregulated offer.

A healthy regulated market is an instrument to achieve the different public goals related to betting and gaming: the fight against fraud, tax and societal returns, legal certainty; and, of course, the protection of consumers and vulnerable groups. Within that regulated offer, conditions can be imposed to attain those goals.

Therefore, the goal of stricter regulation is, clearly, to increase protection. Will it, then, deliver the outcome for consumers and, more widely, society, being better protected? That largely depends on a substantial subset of consumers not joining the unregulated offer, otherwise known as the black market. The more prominent the latter, the less protected consumers and citizens will become – being less affected by applicable rules.

Is that a plausible counterfactual? Absolutely. Particularly in remote betting and gaming, as in many other disruptive, digital markets, effectiveness is a by-product of three elements: demand elasticity – consumers' sensitivity to switching to close, more attractive, substitutes. Availability – the capability of regulation to black out the unregulated offer. And enforceability – the ability to discipline or police consumers to not switch to undesired substitutes. In 2022's digital, de-localised environments, demand elasticity is high, capability to black out the unregulated offer is low, and enforceability is non-existent.

In this context, which applies to the UK as elsewhere, gaming regulations that overly restrict without considering the character of the unregulated environment might turn out to be ineffective. It’s the same as enacting a regulation that seeks to address the issue of traffic congestion by merely banning hackney carriages while pretending that folk would not consider other existing similar car alternatives.

Thus, regulating in this situation must consider consumers' overall balance of incentives. In doing so, a detailed cost-benefit analysis that incorporates the illegal offer angle can pay off. We know first-hand that this exercise requires delicate appraisal and so shall not trivialise its difficulty. However, from our former cumulative experience in leading Spain's remote gaming jurisdiction (2013-2020), we may offer two departing insights.

Firstly, it is worth underlining that the sensitivity between the so-called white and black markets is not mere intellectual fabrication. In 2015, after three years of effective regulation in place, the number of customers for online betting and gaming choosing the regulated environment barely reached 55% of the total estimate playing. That year a major change in the gaming offer came into effect – the legalisation of online slots. As a result, over 87% were now using the regulated market by 2019.

Secondly, this change meant no spike in the disordered gambling rates, which remained anchored in the region of 0,3%-0,4% for the adult population throughout the period. So, whilst we cannot ascertain what would have happened had the size of the unregulated offer been maintained or even enlarged, we do know that an enhanced regulated offer was compatible with a key KPI related to betting and gaming's social sustainability remaining stable.

Does this mean that any regulatory considerations to enhance consumer protection should be abandoned, that any such concerns should be ruled out? Of course not. However, in the current situation, when enlarged black markets are emerging throughout Europe in parallel to regulatory tightening of duty of care provisions and banning of marketing and advertising with no evidence of a simultaneous shrinkage of problem gambling rates, it seems timely to recall the foundational value of a sound starting point.

A well balanced, proportionate regulatory approach contributes to the fixation of demand within the regulated betting and gaming offer. A healthy regulated market is a pre-requisite to transforming policy objectives into effective outcomes. It pays to build the rest up from there.

Regulation's first duty is to be effective, not random. Over-the-top prescriptions will not cut it. Do not defeat the purpose.

Juan Espinosa and Carlos Hernández Rivera are former General Directors for Gambling Regulation in Spain (2016-2020; 2013-2016, respectively)


Share this page
Partner content