“Channelization” of players into licensed sphere should be a top priority of any successful regulated gaming market: paper
The “channelization” of players from the black market into the regulated sphere should be a primary goal of any government offering or looking to introduce a regulated gaming sphere, while the success of the regulatory system should at least be partly judged on the extent to which it achieves this channelization goal, according to a new research paper.
Australian advisory firm Vanguard Overwatch, overseen by the same team that curates the annual gambling law and legislation conference Regulating the Game in Sydney, penned the paper, taking a specific look at some of the policy decisions impacting the regulated gambling markets in Australia and New Zealand.
It argues that the goal of any government agency or regulatory body cannot be to eliminate demand, but to “minimize harm by regulating the legal market effectively and channelling consumers away from illegal operators.”
“Prohibition does not work,” the paper states. “The historical evidence across tobacco, alcohol and gambling consistently demonstrates that where legal supply is unavailable, over-frictional or uncompetitive, consumers do not stop consuming. They migrate to illegal supply.
“An effective legal market protects consumers, disrupts criminal enterprise and preserves the integrity of the regulatory perimeter. Taxation revenue is a secondary but material benefit.
“This paper argues that the central policy question is not whether to regulate, but whether a regulatory regime is calibrated well enough to keep the legal market credible, attractive and enforceable – the concept this paper calls channelization.”
Titled, The Price of Losing Control: Channelisation and Regulatory Failure in Online Gambling, the paper points to two contrasting approaches to the online gambling sector. While Australia still prohibits online casino and online poker, and has stubbornly maintained a ban on online in-play sports betting, New Zealand is in the process of introducing a newly regulated market for online casino operations.
On the Australian situation, the persisting prohibition of online in-play betting and online casino is, Newson argues, “under increasing pressure as offshore operators offer precisely those products to Australian consumers outside any regulatory perimeter.”
New Zealand’s argument in opting to regulate online casinos is that it is not creating a new gambling market but is simply looking to channel a market that already exists into the licensed space.
With licenses set to be issued later this year, Newson says a series of practical challenges facing New Zealand’s Department of Internal Affairs will ultimately determine whether the new regime succeeds in channelling consumers into a regulated market or simply adds a layer of licensing over a market that remains strategically porous.
“These challenges include: the cost and burden of licensing, which if set too high will deter legitimate operators and leave the field to offshore competitors; the scope and design of permissible product offerings, which if too restrictive will leave the legal market unable to compete; advertising and marketing restrictions, which if applied asymmetrically will undermine the visibility of the legal market; and enforcement capability, given that DIA has no established track record in online casino regulation,” the paper states.
Importantly, the paper does not support the notion that regulation by itself creates the black market, but rather that gamblers are attracted to illegal offshore sites when those sites offer a combination of product access, pricing advantages and lower-friction participation that the regulated market does not match.
Australia’s illicit tobacco industry, which now accounts for 80% of tobacco consumption due to the massive tobacco excise on the legal product, provides a case in point.
“Modern black markets do not emerge simply because demand exists,” Newson states. “They emerge when law, market design and enforcement fall out of alignment badly enough that illicit supply becomes the easier, more attractive or more profitable channel. Australia’s illicit tobacco crisis is now one of the clearest examples of that dynamic.
“A regime can continue to speak in the language of public protection while steadily losing practical control of supply, revenue and compliance to criminal enterprise. Gambling is not the same market, but the policy parallel is difficult to ignore.”
While the gambling issue is complicated by the rapid growth of cryptocurrency as a payment channel for illegal operators and the emergence of social media influencers as an unregulated promotional pathway, the paper offers a series of practical recommendations for governments and regulators to consider.
These recommendations call for a more systematic approach to tackling black-market gambling, with real-time monitoring, clear enforcement commitments and stronger action against alternative payment channels such as cryptocurrency.
They also advocate greater enforcement capacity, accountability across the commercial ecosystem supporting illegal operators, transparency around their suppliers, and regular reviews of the drivers of illegal gambling and the impact of product prohibitions – at the same time cautioning against using the black market as a blanket argument against consumer protection.
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The Backstory
Regulators shift from prohibition to channeling demand
The debate over online gambling regulation in Asia-Pacific has increasingly turned on a practical question: whether governments can move existing demand into licensed channels without making the legal market so constrained that players remain offshore. The new paper on channelization lands in a policy environment shaped by that tension, particularly in Australia, New Zealand and the Philippines, where regulators have tried different combinations of prohibition, licensing, advertising rules, tax settings and enforcement.
The central premise is that online gambling demand does not disappear when a government bans a product or limits legal visibility. Instead, it often moves to operators beyond the reach of licensing, tax, player verification and responsible-gaming controls. That argument has become more prominent as illegal operators use cryptocurrency, social media promotion, mirror domains and offshore payment rails to reach players in markets where the regulated product is unavailable or less competitive.
Australia remains the clearest example of a jurisdiction holding the line on product prohibitions. Online casino and online poker remain banned, while online in-play sports betting is heavily restricted. The result, critics argue, is a market in which licensed operators carry the compliance burden while offshore competitors offer products Australian consumers already seek. The same logic underpins industry warnings that tighter marketing controls can unintentionally strengthen illegal sites if enforcement does not move at the same pace.
Australia’s advertising fight shows the enforcement gap
Australia’s latest wagering advertising reforms illustrate the political pressure regulators face. Parliament has passed measures restricting wagering promotion during live sports coverage, in sports venues and on uniforms, while limiting the use of athletes, celebrities and influencers. Licensed operators have acknowledged the need for reform, but they also warn that additional limits could reduce the ability of compliant companies to compete with sites that ignore Australian law.
PointsBet Chief Executive Andrew Catterall made that case directly, saying the post-reform operating model for licensed bookmakers would become more complicated and expensive. As PointsBet warned over Australia’s gambling ad restrictions, the danger is that reform aimed at reducing harm gives “a free hit” to offshore operators that pay no Australian tax, answer to no local authority and are harder to block at scale.
The Australian debate also draws comparisons with tobacco policy. Large excise increases have helped create a lucrative illicit tobacco trade, with enforcement agencies confronting criminal supply chains that emerged as the legal product became less affordable. Gambling is not identical, but the policy lesson is similar: when the legal channel becomes too costly, narrow or inconvenient, illicit supply can become more attractive to consumers and more profitable for criminal networks.
New Zealand tests the channelization model
New Zealand is moving in the opposite direction from Australia by creating a regulated online casino market. The government has framed the policy as an effort to bring existing offshore play under domestic oversight rather than to create new gambling demand. That makes the design of the licensing regime central to whether channelization succeeds.
The licensing debate has already exposed competing interests. SkyCity Entertainment Group, which operates land-based casinos in New Zealand and Australia, has argued for a smaller pool of online casino licenses and for licenses to be restricted to domestic companies. The TAB has also urged a narrower model, warning that foreign operators could dominate and threaten funding for racing and sport. Internal Affairs Minister Brooke van Velden has pushed back, saying the government’s role is to create a fair regulated market rather than protect incumbent brands. As SkyCity called for New Zealand to limit online casino licenses to five, the question became whether scarcity would protect consumers or merely shield existing operators.
Tax and public-benefit funding have added another layer. Van Velden opposed a proposal to direct 4% of online gambling tax revenue to community groups, warning that it could create dependence on gambling income and make future policy change harder. The government also raised offshore gambling tax from 12% to 16%. As New Zealand debated community funding from online gambling taxes, officials weighed revenue, harm minimization and market attractiveness. A tax rate that is too high could discourage reputable operators and leave offshore sites with a pricing advantage.
Those choices will help determine whether New Zealand’s market is sufficiently visible, competitive and enforceable. Too few licenses, strict product limits, high costs or asymmetric advertising rules could leave consumers with little reason to migrate from offshore brands they already use. A more balanced regime could give regulators access to identity checks, player protection tools, tax revenue and enforcement leverage that do not exist in the illegal market.
The Philippines offers a live case study
The Philippines has become one of the region’s most closely watched examples of channelization. PAGCOR, the national gaming regulator, reduced e-games license fees from more than 50% of gaming revenue to 35% in 2024 and 30% in 2025, seeking to make the legal market commercially viable. It also required know-your-customer payments, real-time wager monitoring, supplier accreditation and stronger action against illegal sites.
That combination helped shift more online play into the regulated sector. Licensed e-games revenue rose sharply in 2025, and monitoring estimates cited by officials suggested the legal share of the online market had passed 50% after years in which offshore operators dominated. The change was not simply a matter of higher gambling activity; it reflected more wagering becoming visible to the state.
The model then entered a second phase: higher standards. PAGCOR tightened rules for advertising and verification, accredited more of the business-to-business supply chain, cracked down on illegal sites and introduced a Minimum Guaranteed Fee that made passive license holding more expensive. In a white paper, Arden Consult argued that the subsequent revenue decline should be read as part of a regulatory reset rather than evidence of failure. As Arden Consult framed the fall in Philippine online gaming revenue, the test is whether legal channelization continues to improve as standards rise.
The Philippine experience also shows the risk of overcorrection. If compliance costs, payment restrictions or advertising limits make licensed platforms materially less usable than illegal alternatives, players can move back offshore. Enforcement then becomes decisive: legal operators face higher costs while illegal competitors retain commercial advantages unless site blocking, payment disruption and action against promoters are fast and sustained.
Advertising is becoming the central battleground
Advertising policy has emerged as the most visible proxy for the channelization debate. Lawmakers want to reduce exposure among minors and vulnerable players, especially through celebrities, influencers, sports sponsorship and social media. Licensed operators say they can accept stricter content and placement rules, but a total ban would remove one of the few benefits of licensing: the ability to build a lawful brand in public.
That argument is now playing out in the Philippines, where a proposed Gambling Advertising Prohibition Act would ban gambling advertising and sponsorship across broadcast, print, outdoor, websites, applications and social media, while allowing licensed operators to advertise only on their own premises and platforms. A separate analysis of the Philippine gambling advertising ban proposal warned that such a measure could reverse recent migration from illegal to licensed play because offshore operators would continue using illicit digital channels while regulated brands went dark.
The enforcement asymmetry is critical. PAGCOR can fine a licensed operator, stop an unapproved promotion or threaten suspension. It cannot impose the same sanctions on an offshore site with no Philippine license. Illegal operators can shift domains, use private messaging groups, pay influencers and target self-excluded or vulnerable players without honoring any domestic safeguards. A ban that binds only licensed entities can therefore be total for the legal market but partial for the real market.
International comparisons sharpen the point. Italy’s total advertising ban has been followed by persistent concern over illegal gambling, while Belgium and the Netherlands have also struggled with leakage to unlicensed sites after tighter limits. The United Kingdom, by contrast, permits gambling advertising under strict rules and has maintained high channelization. The policy distinction is not between regulation and no regulation, but between visibility under enforceable standards and invisibility outside the law.
The stakes go beyond tax revenue
Tax revenue is a material benefit of channelization, but the larger stake is regulatory control. Licensed operators can be required to verify age and identity, monitor play, offer deposit and loss limits, use certified games, display responsible-gaming messages and honor exclusion registers. Illegal operators provide none of those protections and often operate through payment channels and marketing networks designed to avoid detection.
That is why the current channelization debate is not merely about industry profitability. It is about whether governments can design legal markets that consumers will actually use, while maintaining standards that reduce harm. If taxes, licensing costs, product bans or advertising restrictions make the legal offer uncompetitive, regulators may preserve the appearance of strict control while losing practical control of supply.
The policy direction emerging from the related debates is calibration. Governments need enough friction to protect consumers, but not so much that the regulated market becomes unattractive. They need advertising rules that prevent predatory targeting, but still allow consumers to identify licensed operators. They need enforcement against illegal sites, payment providers, affiliates and influencers, not only compliance demands on companies already inside the perimeter. Without that balance, channelization can stall or reverse, leaving the state with less visibility, fewer tools and a larger black market.
