In economics and public administration, a peculiar law of unintended consequences is known as the Cobra Effect. It is a situation in which an attempt to solve a problem leads to the exact opposite of the expected result.
In this article, Casino Market’s team examines why the phenomenon poses a particular threat to gaming regulatory systems and whether it can be prevented. Learn how to comply with legal requirements while maintaining commercial benefits.
Origins of the Exotic Term
The expression was first mentioned during British rule in colonial India. Authorities decided to reduce the population of venomous snakes by placing a bounty on every cobra killed. Crafty residents began breeding the animals intentionally and then slaying them for profit. When the program was cancelled, people released the rest of the serpents, whose numbers increased even further.
A similar mechanism is observed in the gambling field when regulators impose excessive restrictions with the intention of protecting users from risks and preventing ludomania. In the end, some players migrate to unlicensed websites, which lack the oversight, transparency, and self-protection systems that harsh rules were created to ensure. This paradoxical feedback loop becomes a formidable obstacle for the industry.
Balancing Protection and Competitiveness
Most tightening of gaming regulations stems from a goal to care for vulnerable users and reduce problematic behaviour.
With this noble aim in mind, authorities do the following:
- impose betting and deposit limits;
- establish mandatory credit checks;
- restrict advertising and loyalty programs.
In practice, excessive barriers often backfire. When legal platforms become overly demanding of customers, the latter do not stop playing. Instead, these users simply migrate to shadow portals, where there is no supervision, to retain the comforts to which they are accustomed. As a result, official brands lose market share, while the government is deprived of tax revenue and influence.
It is necessary to create a system that simultaneously protects consumers and maintains the competitiveness of the white sector. This challenge requires a precise balance. Nevertheless, the experience of several regions has already confirmed that such a compromise is possible. Other countries with overregulation are already facing negative consequences.
Practice shows that it is not the number of bans that matters, but their proportionality. Only reasonable demands can boost trust, keep players within the legal framework, and ensure industry sustainability.
White Market Share: Indicator of Regulatory Effectiveness
The portion of gaming activity accounted for by licensed platforms, or channelisation, is one of the key parameters that indicate whether the current norms are for the better. It reflects how successfully authorities balance user protection with service availability. The more flexible and clear the regulations, the higher the retention of players in the legal environment.
Let us explore a few examples across several countries:
Ontario
This Canadian province is considered a model of smart oversight. According to H2 Gambling Capital’s research, channelisation in licensed sportsbooks reached 92% in 2024 and is expected to grow to 97% by 2028. This result was made possible by market opening and the creation of adequate, rather than excessive, requirements for operators.
By comparison, in other provinces where monopolies remain, the same indicator does not exceed 11–15%. These figures are unlikely to change significantly in the coming years.
Denmark
The country is experiencing similar trends to Ontario. Following jurisdiction liberalisation, its channelisation skyrocketed from less than 40% to 91.5% in 2024. Additionally, GGR increased by 5.6% YoY, with the internet casino becoming the key source of income, growing by 14.7%.
Such high numbers in the gambling business in Denmark confirm that moderate regulation fosters trust. The stimulation of industry development is another valuable achievement.
Germany
The local situation is the opposite. Several fundamental restrictions accompanied the introduction of GlüNeuRStv 2021:
- a monthly deposit threshold of €1,000 across all certified platforms;
- a turnover tax of 5.3% on internet-based slots;
- a limit of €1 per spin in web games.
As a result, a significant portion of the audience migrated to offshore portals. According to niche associations, channelisation in the RNG content vertical on the Internet is estimated to be between 20% and 40%.
Sweden
This state has long been considered a model of thoughtful regulation. Nevertheless, lately, it has been experiencing an outflow of players. As of 2024, the general retention rate in the legal field was 85%, while in the online casino segment, it had fallen to 72–82%.
Excessive restrictions on bonus offers and loyalty programs have weakened the position of licensed brands. The government is already revising standards to reduce the share of the grey sector.
Statistics confirm the obvious: severe supervision provisions destroy white businesses faster than the total absence of oversight. Bloomberg’s recent report claims that uncertified operators currently control a whopping 71% of European iGaming, generating €80.6 billion in GGR.
This situation undermines the regulated market and deprives state budgets of billions in tax revenue. The optimal model must be flexible, transparent, and understandable, so that the majority of users prefer to remain in the legitimate space.
Why Some Players Choose Unlicensed Brands
The UKGC’s 2025 study found that customers’ churn from the certified sector is rarely due to a cessation of gambling per se. The key motivations are more favourable terms and fewer restrictions on unauthorised portals.
Among the core reasons, respondents cited:
- generous odds and attractive bonuses;
- uncertainty about which websites are truly legal;
- the loophole to circumvent self-exclusion programs;
- access to crypto payments, which many white brands lack.
The Commission notes that there are gaps in the data. Still, it acknowledges that excessive barriers and the reduced availability of lawful services encourage punters to seek their fortune on unregulated platforms.
The results of an independent survey by the marketing research company Ipsos support the previous conclusion. Young users increasingly confess that many of their peers are deliberately turning to offshore portals. The main arguments include fewer checks, faster access, and the absence of intrusive limits.
Authorities need to recognise that if legal websites appear slow, overly restrictive, or less beneficial, audiences will inevitably seek alternatives. As a result, compliant enterprises will suffer from customer churn, and the market will lose transparency and control.
How the Cobra Effect Penetrates the Regulation
Let us look at examples of how an initially reasonable approach can backfire:
Solvency Checks
These measures were intended to protect vulnerable groups. Nevertheless, overly detailed demands and document requests, even for minimal amounts, create unnecessary obstacles.
As a result, some clients abandon their registration. Meanwhile, others switch to web resources where the process is quicker and features fewer questions.
Product and Price Limits
Such initiatives include eliminating live games from the offering and reducing slot RTP percentages due to high turnover taxes, among others. Due to these actions, a significant portion of the audience begins to seek alternatives with more appealing proposals.
Even wagering and deposit limits, introduced to protect consumers, can backfire. With excessive use, such measures often prompt people to visit unregulated websites that have minimal or no restrictions.
Advertising Policy
While a complete or partial ban on promotion does help reduce the harmful effects of gambling content, this variant also has a downside. The less communication there is, the more difficult it is for licensed operators to inform their audiences about the benefits and responsible gaming tools.
With illegal brands continuing to be actively popularised in search results, on social media, and across other channels, consumers are confused about which brands are officially registered and which are not.
The Cobra Effect in regulation most often manifests itself when restrictions are introduced without regard for market incentives. A reasonable policy, instead, helps maintain industry transparency and does not undermine the competitiveness of licensed operators.
Switching to Smart Sector Oversight
The primary goal of supervision is to strike a balance between excessive freedom and too harsh frameworks. The algorithm must be flexible and rational. Well-thought-out governance enables keeping audiences within legal borders while protecting vulnerable groups. Such rules should be based on reliable data, behavioural analytics, and reasonable incentives for participants.
The experience of jurisdictions with high channelisation suggests 5 areas for effective action:
- Multi-layered, informed checks. Paperless and discreet risk assessment mechanisms should be implemented, leveraging live signals from open banking and credit systems to enhance transparency and accuracy. Document verification is necessary only when there are clear signs of increased threats.
- Competitive and understandable product standards. Instead of comprehensive bans, clear criteria for content design and functionality should be implemented to minimise harm and maintain interest in legal resources.
- Mandatory labelling of official platforms. Consistent certification, logos, and wording on websites, apps, and payment pages will help instantly identify licensed providers. Further clarification of dispute resolution procedures and responsible gambling measures enhances trust in the sector.
- Jointly combating illegal activity. Regulators, operators, fintech providers, and platform suppliers must establish common communication channels to facilitate effective collaboration. This decision will enable the prompt plugging of unauthorised transactions, prohibited ads, and the shadow niche’s influence.
- White market share as a KPI. Setting specific targets for channelisation helps authorities gain better results. Periodically reassessing objectives and adjusting tools allows for a quick response to changes. A flexible combination of blocking measures, fiscal incentives, and product settings makes regulation more effective.
The role of business is not limited to fulfilling formal requirements. It is also important to maintain the attractiveness of their websites, which allows for growing trust and keeping users within the legal framework.
The goal can be achieved through the following actions:
- simplifying KYC procedures;
- ensuring transparency of payments;
- displaying licences and security certificates.
Smart regulation is built on partnership. Joint efforts between the government and operators create a reliable, transparent, and economically beneficial market.
The Main Things About the Cobra Effect in Casino Oversight
Mistakes in establishing supervisory systems are costly. Even the most thoughtful measures can backfire if they create excessive barriers or fail to account for real-world behavioural factors.
The goal of modern regulations is not to reduce the level of protection, but to make it smart, adaptive, and data-driven. When rules are assembled rationally, jurisdictions keep punters in the white segment without compromising convenience and security.
To balance industry control and development, we advise considering the following aspects:
- Excessive restrictions and blanket bans often lead to the growth of the shadow niche rather than to user protection.
- The primary KPI of any oversight system is the market share that remains within the legal sphere (channelisation).
- A judicious combination of tax incentives, content controls, and modern blocking tools ensures efficiency.
- Product, rate, and advertising limits must be well-thought-out. Otherwise, users will switch to uncertified operators.
- The best ways to strengthen the industry are through transparent communication, access to safe solutions, and trust in jurisdictions, rather than strict bans.
- Smart oversight means creating an environment where legal platforms become a natural choice.
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