Paul Newson: Regulatory lessons from Australia’s tobacco sector

Paul Newson, long-time Global Gaming Insider contributor, analyses what gambling regulators should learn from a market the state has almost stopped governing

In March, New Zealand’s Racing Integrity Board put a number on a problem the gambling industry has spent years talking around. More than 50 operators dealing in cryptocurrency, the board found, now accept bets on New Zealand racing. They pay no product fees into the sport. They share no integrity data. Many shelter behind licences issued in Curaçao, Anjouan and Costa Rica. Those jurisdictions lend a platform the appearance of legitimacy while asking almost nothing of it in return. The board’s chief executive, Dr Eliot Forbes, described a model that extracts value from racing without contributing to the systems that keep it honest.

The timing is pointed. New Zealand has just legalised online casino gambling, partly on the logic that a licensed market can pull players back inside a regulated perimeter. That logic is sound. But the Racing Integrity Board’s warning is a reminder that legalisation, on its own, settles nothing. A market can be regulated on paper and still leak, and the question that actually matters is not whether an activity is permitted, but how much of it stays within reach of the controls that make regulation mean something: consumer protection, money laundering controls, integrity monitoring and tax.

The role of channelisation

Industry shorthand for this is channelisation, the share of activity that remains inside the licensed market. It is an unglamorous metric, but it is the one that determines whether a regime governs a market or merely presides over it. And the clearest contemporary illustration of what happens when channelisation collapses is not a gambling market at all. It is Australian tobacco. 

Black markets are not created by regulation alone

Australia spent two decades running one of the world’s most aggressive tobacco control regimes: plain packaging, advertising bans, and a relentless excise escalator that made its cigarettes the most expensive on earth. For years it worked, on both health and revenue. Then it tipped. As the legal price climbed past AU$50 (US$35) a packet, most of it tax, an illicit product selling under AU$20 became not a fringe option but the rational choice for a large share of smokers. The legal market did not shrink gracefully.

It cratered. The fiscal numbers are sobering. Tobacco excise raised more than A$16bn in 2020. The May 2026 federal budget wrote AU$6bn off the bottom line in five months, and the annual take is now forecast to fall to barely AU$2bn by 2030, with cumulative losses to the budget projected to reach around AU$65bn by the end of the decade. Illicit product already accounts for roughly half the market. One submission to a parliamentary inquiry, from Philip Morris, an interested party whose figures deserve scrutiny, projects illicit consumption passing 70% of the total as early as 2027, and organised crime supplying almost all of Australia’s tobacco and nicotine by 2030. Even discounted for the source, that trajectory is corroborated by the Government’s own collapsing forecasts and by a Border Force that concedes the black market cannot be arrested by enforcement alone. More than 200 arson attacks in 18 months, as criminal groups fight over the trade, are the market’s own commentary on who now controls it.

Worthwhile comparisons

This is the part worth dwelling on, because it is easy to draw the wrong lesson. The tobacco story does not prove that public interest regulation is futile, and the parallel to gambling should be drawn with discipline rather than triumphalism. Smoking rates did fall; the goal of reducing harm was partly met.

What Australia lost was not the policy goal but practical control of supply, and with it the revenue, the product safety and the ability to keep organised crime out of an everyday consumer market. Enforcement did not disappear; it expanded, reactively and at growing cost, into something that increasingly resembles a war on drugs. The state kept the vocabulary of control long after it had ceded the substance.

That is the precise risk gambling policy should take seriously, and it is more subtle than the familiar industry complaint that tight rules push players offshore. Black markets are not created by regulation alone. They are built: by payment processors willing to move the money, by affiliates and search intermediaries willing to market the product, by platforms that tolerate advertising whose entire pitch is that the operator sits outside national self-exclusion schemes; and by the offshore bodies that pose as regulators and sell the thin licences that make an unlicensed operator look respectable. Players, for their part, do not migrate for a single reason. Some chase products they cannot legally buy; some want better prices or crypto rails; some are evading the very controls a regime has built; some simply follow a link. Treating all of them as victims of over-regulation is as lazy as pretending none of them exist.

But the structural point survives the nuance. A regulated sector can remain formally intact while becoming strategically hollow: fully compliant, carefully supervised and steadily losing the activity that justifies the supervision. Once enough of the market sits outside the perimeter, a government is no longer the primary organiser of that market. It is competing with the actors who are.

A regulated sector can remain formally intact while becoming strategically hollow

A cautionary tale

For regulators and serious operators, that reframing changes the list of priorities. It means treating shared commercial infrastructure between licensed and unlicensed operators (the same payment provider, the same affiliate, the same platform) as a compliance failure rather than a footnote in due diligence. It means naming, publicly, the banks, processors and hosts that keep illegal supply running, because reputational pressure does what enforcement correspondence cannot. And it means subjecting prohibitions to honest, periodic review on channelisation grounds: a ban that quietly sustains a durable offshore market is not protecting consumers, whatever its intent. Where a product category has been pushed entirely offshore, the relevant question is no longer whether the prohibition is well intentioned, but whether it still works.

None of this points toward deregulation, and it would be a mistake to read it that way. The case is narrower and harder: a regime has to earn its authority in the market, not simply assert it in statute. Whether to ban an activity or allow it has always been the less interesting question. The one that decides outcomes is whether the licensed offering stays good enough, and visible enough, that most players have no reason to look elsewhere, while the illegal alternative is squeezed on the things that actually sustain it, namely access to payments, ease of marketing and margin. A regime that gets that balance right governs its market. One that does not simply watches it leave.

Australia’s tobacco experience is the cautionary version of getting that wrong. New Zealand’s racing integrity warning is the early version: a market quietly filling with operators that take the bets, keep the data and pay nothing back. Both point to the same uncomfortable test. The measure of a gambling regime is not how tough it looks on the day it passes. It is how much of the market is still inside it five years later, and whether the state still governs the thing it claims to.

Paul Newson is a Principal at Vanguard Overwatch and the founder of Regulating the Game, an international conference on gambling law and regulation. He is a former Deputy Secretary of the NSW Department of Justice, where he oversaw liquor, gambling, and racing policy and regulation. Paul is a patron and former president of the International Association of Gaming Regulators and a former trustee of the NSW Responsible Gambling Fund.