Illegal gambling in Europe: Why even mature markets are losing to the shadow sector

It is commonly believed that the Western market is a benchmark for the sustainable development of the gambling industry. Many European countries where gambling is legalized demonstrate record growth in online GGR, an increase in the number of gambling companies, and a growing player base. This has been made possible by the systematic development of the regulatory environment, which allows for maintaining a balance between expanding business opportunities and protecting players’ rights, preventing the spread of gambling addiction, and so on. However, even in such a highly regulated environment, there is still room for shadow gambling with billion-dollar turnovers, operating without any taxes or accountability.

For several decades now, gambling in Europe has been a fully fledged industry that functions effectively and brings benefits to both the state and businesses. At the same time, users of gambling services remain protected from financial risks and can expect a high-quality gaming experience. However, the regulatory environment that ensures the smooth functioning of this system also acts as a constraining framework for it.

These limitations are most clearly evident when it comes to competition with the shadow segment of the gambling market, which, despite the maturity and high level of regulation of the European market, continues to operate actively and generate significant profits.

Undoubtedly, operating in the illegal segment remains more risky and dangerous. However, the absence of taxation, the need to pay licensing fees, and unrestricted opportunities to attract players make these risks acceptable for illegal operators.

While legal operators spend substantial resources on player verification, monitoring gaming behavior, complying with financial standards, and so on, illegal operators act with maximum freedom and audacity. They resort to aggressive marketing, engage influencers and celebrities in their advertising campaigns, “recruit” players through Telegram channels, and offer unjustifiably large bonuses that often turn out to be fake, among other practices.

Ukraine faces the same problems: illegal operators scale their businesses with virtually no restrictions. Moreover, due to the lack of effective regulation, they feel even freer than in Europe. Creating the image of gambling as a way to earn easy and quick money, using various micro-formats of gambling—even in messengers—as well as the abundance of misleading advertising on social networks and websites are all inaccessible to legal operators. For them, any violation means the risk of either receiving a substantial fine or losing their license.

Therefore, to combat illegal operators, it is necessary to strengthen both regulation and liability for its violation. After all, behind any websites and platforms there are individuals and legal entities that can be held accountable for violating the law. But first and foremost, legislation must clearly and in detail define the boundaries that must not be crossed and the responsibility for crossing them. The formation of such a legislative framework should take place in three directions:

1. Unification of rules. Unified standards for taxation and monitoring for a period of 3–5 years. Separate tax regulations for gambling must finally come into force, and the State Online Monitoring System (SOMS) must be fully implemented.

2. Flexible instruments. The very approach to regulating the sector and the interaction between gambling operators and players must change. It is necessary to abandon the logic of “constant bans and restrictions” and move to a more flexible system in which the player can independently choose gaming limits, determine time spent in play, and so on. At the same time, player behavior should be monitored using artificial intelligence–based tools that would signal both to the player and the service provider when the player begins to spend too much, place risky bets, uncontrollably increase their frequency, etc.

3. Transparent marketing. Clear guidelines for influencers and affiliates regarding what can be said and shown in advertising or sponsored content. The existence of a transparent and strict system of penalties for violations of these rules, including the blocking and forced removal of main and backup accounts, and so on.

   
   

As long as this system does not function properly, the gray market will prevail not through product or service quality, but through freedom from rules and restrictions. Due to non-payment of taxes and licensing fees, as well as the lack of player oversight, illegal gambling businesses cost their owners less than legal ones while simultaneously generating significantly higher profits. That is why a comprehensive regulatory framework is necessary—one that will allow legal businesses to compete on the basis of service quality and gaming conditions, while also ensuring a tougher and more effective response to the activities of illegal operators.