Channelisation by Design: Protecting the Legal Betting System and Reducing Illegal Betting (reproduced from IFHA Monthly Despatch)

Introduction

Channelisation is the amount of betting activity which takes place through legal ‘channels’ compared to illegal ones, such that the higher the channelisation rate, the more activity is undertaken through the legal market.(1) The channelisation rate is defined as the share of total gambling activity, measured by gross gaming revenue, number of bets, or digital traffic, that flows through licensed, regulated operators rather than unlicensed or offshore alternatives. Channelisation is a useful market health indicator: the higher the rate, the greater the proportion of consumers and betting activity within a legal framework of consumer protection, taxation, and regulatory oversight.

A high channelisation rate indicates that the regulated market is working, with more consumers choosing the legal market. A low or declining rate is a warning sign that the illegal market is increasing, which is usually caused by more attractive product and/or lower price (often because of high tax on legal operators).

This article argues that channelisation should not be used as a specific measurement target, but as a design objective. Gambling regulators and government policy makers should actively engineer their regulatory, taxation, and legal betting product frameworks to maximise channelisation so that they can better sustain the commercial health of legal betting markets and protect consumers from unregulated operators. Racing and other sports authorities are stakeholders in setting the regulatory environment because of the intrinsic relationship with betting and should support channelisation as a key part of maintaining the funding (from legal betting) as well as intelligence flows on which integrity in racing and other sports depend.

Measuring Channelisation

Channelisation levels clearly vary between jurisdictions. The reasons for this are not always clear, but David Henwood, Director at consulting firm H2 Gambling Capital, has suggested one explanation:

“There is much conjecture that one of the main reasons customers use offshore betting sites is because they offer a broader range of product than available onshore. The study [The Availability of Sports Betting Products] findings reinforce that point of view. Limiting the choice of onshore bet types - including live in-play - is basically counter productive. Instead, markets most successful in limiting offshore play - evidenced by a channelling rate of 90% plus - are the ones that have generally opened their onshore provision to a broad product choice. There is much that can be learnt herein in terms of best practice regulation.”

Broadly, there are ranges of channelisation that can be considered as legal betting markets being optimal, adequate, or failing. H2 Gambling Capital commented in 2024 that channelisation of 90 per cent and above is high and optimal; 80 to 89 per cent is adequate but vulnerable; 70 to 79 per cent is medium and concerning; and below 70 per cent is low and failing.(3) These channelisation estimates are a snapshot from two years ago, but the market situation is changing more quickly than analysts can review.

This is problematic because, as the UK Gambling Commission has noted, “a small percentage difference in a channelisation rate equates to a very large amount of Gross Gambling Yield (GGY)…If channelisation rate estimates are out by just 0.5 percent, this would a difference of £34.5 million in the associated estimate of GGY.”(4) [Note: GGY is effectively the same metric as Gross Gambling Revenue, GGR]. There are continual variations in reporting of channelisation rates, indicating that measurement methodologies vary and the situation changes quickly.

In Australia, the channelisation rate is estimated to have fallen from 74 per cent in 2021 to 64 per cent in 2025. Onshore betting volumes are estimated to have reduced by 5 per cent while offshore illegal betting grew by 14 per cent over two years.(5) Australia has a mature legal betting market with multiple licensed operators offering a varied range of products, but there are indications of the erosion of the regulated market by the illegal market. Channelisation data provides a visible indicator of legal betting market health, and should be refined by regulators in Australia to better understand the market situation.

In Brazil, regulated betting was launched in January 2025 but within six months illegal operators had captured as much as 51 per cent of the market. The persistence of the illegal market is despite over 11,000 unauthorised domains being taken down, illustrating the severe limitations of enforcement as a means of reducing illegal betting. Tax is a critical structural reason for the illegal market in Brazil, and a 2025 study suggested that “increasing the sector’s tax burden may encourage illegality and could even reduce potential tax revenue.” (6) A 12 per cent tax rate is applied on operator GGR and 15 per cent income tax is levied on the net winnings of individuals, meaning that legal operators pay out 75 per cent of winnings whilst illegal operators pay out 100 per cent.7 The situation in Brazil demonstrates that effective channelisation requires not only sufficient legal betting products, but also competitive prices.

In the Netherlands, gambling regulator Kansspelautoriteit (KSA) reported in April 2026 that channelisation had fallen from 51 per cent at the end of 2024 to 49 per cent in the first half of 2025. The KSA also warned that the illegal market had overtaken the licensed sector in terms of operator GGR and that unlicensed operators now account for the majority of gambling spend in the country.(8) The cause of decreasing channelisation in the Netherlands has been ascribed to a 3.7-percentage-point GGR tax increase from January 2025.

In Sweden, there are varying estimates of channelisation, which is contentious after the government’s increase of tax on gambling from 18 to 22 per cent of GGR in 2024. The Swedish Gambling Authority estimated that the channelisation rate had grown to 85%. In June 2023, a report in Sweden published by the Online Gaming Industry Association indicated that 77 per cent of Sweden's online gaming market is channelised, which the association called “critically low”. The channelisation goal in Sweden is 90 per cent.(9) H2 Gambling Capital adjusted its estimate for Sweden down from 91% to 72% in 2026. While estimating channelisation varies considerably, there is a consensus that the increase in tax on legal products had a negative impact on channelisation.

There is little doubt that high channelisation rates are under pressure from illegal betting, but the wide potential margin of error in measurement means that gambling regulators should be cautious. Channelisation is useful as a measurement methodology when including website traffic, GGR share, and player surveys, but this should only be indicative and a percentage number should not be a policy aim. There is a risk in gambling regulation that if channelisation rates are the subject of very specific targets then the variance in measurement methodologies and outcomes can lead to inaccurate assessments of the illegal betting market size and consequently incorrect policy direction.

Influencing Channelisation

Despite varying measurements of channelisation, it remains a useful indicator of how well policy levers are impacting illegal betting markets. There are three main drivers of variable channelisation that regulators and policy makers should pay attention to:

• the tax and levy burden on licensed betting operators;

• product breadth and market competitiveness of legal betting; and

• consumer awareness and trust in the regulated market.

First, tax is the key factor impacting legal betting pricing, consequently price of the bet, and in turn retaining or driving consumers to the illegal betting market. The IFHA Council reported in January 2026 that “If gambling tax rates go beyond an optimum level, which will differ in every jurisdiction, there is a risk that licensed operators may reduce their own costs and/or increase prices to consumers, which consequently may drive consumers to the illegal market where offshore operators are not compelled to protect players.”(10) The examples of Brazil, the Netherlands and Sweden all show what impact increasing tax has on channelisation, which is inevitably to push consumers to the illegal betting market.

Second, betting product breadth is essential for legal operators to compete with the illegal market. Because illegal operators are unconstrained by responsible gambling obligations, advertising restrictions and bet type limitations, they can exploit the greater freedom that they have with product offerings to consumers. H2 Gambling Capital reported in 2021 that betting markets in jurisdictions where licensed operators faced the fewest product restrictions consistently achieved channelisation rates at or above 90 per cent. In jurisdictions where licensed operators are prohibited from offering bonuses or promotions related to major sporting events, and where the range of available betting markets is narrower than that offered by offshore competitors, channelisation is likely to fall with illegal operators offering a wider variety of betting markets to fill the gap.(11) When the legal market cannot match the product depth of the illegal market product depth, consumers migrate.

Third, consumer awareness and trust in the regulated market is key to attracting them to play with legal operators. The UK Gambling Commission has highlighted the limitation of consumer awareness about illegal betting:

“Respondents showed low levels of awareness of the illegal online market, highlighted by some reporting that they had not used illegal websites whilst their responses to other questions indicated otherwise, and vice versa. This lack of understanding was also highlighted in survey verbatim responses after respondents were asked to name illegal websites they had used, with only a minority able to name an illegal website, and numerous respondents mistakenly naming licensed operators. However, respondents agreed it is important that operators have a licence to operate in Great Britain. There therefore looks to be a disconnect in individuals who gamble online, between the perceived importance of operators being licensed, and their understanding of whether or not operators hold this licence, and how this can be verified.”

The key point to be taken from the UK Gambling Commission research is that consumers often do not know the difference between legal and illegal betting operators, which over time naturally degrades channelisation as illegal betting websites are increasingly perceived as legitimate. The learning from this is that consumer education should be a key part of anti-illegal betting efforts. This should be a joint responsibility of national gambling regulators in partnership with the legal gambling industry.

Recommendations: Channelisation by Design – A Framework

Experience of channelisation in some countries is that it is useful as a design objective rather than a specific target measurement. As a design objective, channelisation provides clarity for objectives regarding an effective legal licensed betting market. As a measurement, channelisation is useful to understand the effectiveness of the legal market and the scale of the threat of the illegal market, but wide differences in methodologies mean that it is less useful for specific target based quantification.

National gambling regulators and partners in the legal betting industry should, however, use agreed channelisation methodologies as a framework for increasing the legal market and decreasing the illegal market. This should involve the following principles:

• Establish channelisation rate analysis as a standing regulatory metric with a methodology agreed between the regulator and legal operators, reported publicly and segmented by product type (racing, other sports, gaming).

• Require formal channelisation impact assessments before enacting tax increases on betting, product restrictions, or advertising bans affecting licensed operators, so that government policy makers have a clear and credible view of the impact.

• Assess if legal racing and other sports betting products are competitive with illegal market alternatives: this includes pricing (odds), product range (exotic bet types, in play), and digital access.

• Build open communication to educate consumers about illegal betting operators, publishing lists of illegal operators and conducting public awareness campaigns demonstrating the risks and greater harms from illegal betting.

Channelisation is a metric that connects tax policy, consumer protection, gambling regulatory design, and sports integrity into a single, measurable number. Falling channelisation is a sign that the legal market is losing competitiveness and potentially evidence that the existing regulatory framework is losing effectiveness or even failing. Increasing channelisation is a sign that the legal market and the regulatory system are working to guide consumers into less harmful activity.

Racing and other sports are key stakeholders in the need for effective channelisation in every jurisdiction: consumers, including racing and other sports fans, that want to bet should be betting in legal markets that are less harmful than illegal markets. Legal betting markets contribute to the maintenance of integrity in racing and other sports, hence channelisation by design is a cornerstone of this relationship between sports and betting.

Notes:

1.  UK Gambling Commission, Channelisation Rate Approach: Challenges of Estimating the Size of the Illegal Market. 6 November 2025 (http://www.gamblingcommission.gov.uk )

2. David Henwood, H2 Gambling Capital, The Availability of Sports Betting Products: An Economic and Integrity Analysis, 19 March 2024 (https://h2gc.com )

3. H2 Gambling Capital, The Availability of Sports Betting Products: An Economic and Integrity Analysis, 19 March 2024 (https://h2gc.com )

4. UK Gambling Commission, Channelisation Rate Approach: Challenges of Estimating the Size of the Illegal Market. 6 November 2025 (http://www.gamblingcommission.gov.uk )

5. H2 Gambling Capital, H2 Gambling Capital releases an in-depth report on the illegal gambling market in Australia, 27 November 2025 (https://h2gc.com/ )

6. LCA Economic Consulting, Off the Radar: Sizing and Socioeconomic Impacts of Illegal Gambling in Brazil, June 2025 (https://ibjr.org.br/ )

7. LCA Economic Consulting, Off the Radar: Sizing and Socioeconomic Impacts of Illegal Gambling in Brazil, June 2025 (https://ibjr.org.br/ )

8. iGB, Netherlands channelisation falls below 50% as illegal market grows, KSA warns, 21 April 2026 (https://igamingbusiness.com/ )

9. iGB, Sweden’s channelisation rate at “critically low” 77%, 19 June 2023 (https://igamingbusiness.com/ )

10. IFHA Council on Anti-Illegal Betting & Related Crime, Excessive Gambling Tax and the Laffer Curve intersection with Illegal Betting, January 2026 (https://www.ifhaonline.org/ )

11. H2GC, (https://h2gc.com/ )

12. UK Gambling Commission, Illegal online gambling: Consumer awareness, drivers and motivations, 18 September 2025 (https://www.gamblingcommission.gov.uk/ )