Latin America series: The Gap Between Regulation on Paper and Players in the Channel

Gambling rules on paper meets a fast growing online betting market in Latin America.

When High Channelisation Proves Hard to Reach

For regulators and operators, channelisation is a performance metric rather than a theoretical concept: it indicates how much real‑world gambling activity sits inside the licensed perimeter versus offshore or unlicensed alternatives. A 90 percent channelisation rate signals that most play — and therefore most tax, KYC coverage and player‑protection duties — is captured by licensed operators, while a 50 percent rate implies that half of the market is still operating beyond those controls.

The European experience offers context rather than a direct parallel. The United Kingdom built its current model on the Gambling Act 2005, as online gambling was still emerging, displacing a smaller, less technically sophisticated unlicensed ecosystem than the one Latin American regulators now face. Data from the Dutch Gaming Authority and other European markets show that restrictive product rules and rising compliance costs, when not matched by effective enforcement, are associated with increased spend on unlicensed platforms. Latin America’s regulators are trying to achieve high levels of channelisation in markets where unlicensed operators have enjoyed years — in some cases decades — of uncontested access and brand recognition.

The enforcement challenge is structurally harder, not because the regulation is weaker, but because the starting conditions are different.

Brazil: A Leading Regulated Market Still Battling a Major Illegal Sector

Brazil’s federal betting framework took effect on 1 January 2025, with 81 operators authorised by the Secretariat of Prizes and Betting (SPA) to operate in the first year. By year‑end, Brazil had established itself among the world’s largest regulated betting markets by volume, with locally licensed brands reporting traffic in the billions of visits and a rapid shift of marketing spend into the onshore channel. SPA’s enforcement data underline both the pace of regulated‑market growth and the scale of what remains outside it: by December 2025, authorities had blocked close to 20,000–25,000 illegal betting URLs, removed hundreds of social accounts promoting unlicensed brands, and overseen the closure of 483 bank accounts linked to irregular activity.

The illegal market did not disappear with the arrival of regulation. The volume of enforcement action in a single year is itself a proxy for how large the unlicensed ecosystem remains. In December 2025, the Chamber of Deputies’ Communications Committee advanced Bill No. 4044/2025, which would define “unauthorised operator” in statute for the first time and extend enforcement liability to intermediaries, payment facilitators, and promoters that support unlicensed platforms. The bill signals a move from chasing individual sites — a reactive, volume‑dependent approach — toward dismantling the financial and technical infrastructure that enables them to operate, but whether it is passed and how far it improves channelisation remain open questions.

The structural tension in Brazil is this: the compliance burden on licensed operators is high. Every operator must pay a BRL 30 million licence fee, maintain a local corporate presence and emergency fund, and meet demanding KYC and AML standards set by the new federal framework and SPA ordinances. On top of that, operators face a 12 percent GGR tax under the Bets regime, alongside social contributions such as COFINS and PIS and a proposed ladder that could lift the headline GGR rate toward 18 percent over the coming years. These costs fall exclusively on licensed operators competing against unlicensed platforms that do not pay taxes, do not comply with KYC rules, and do not fund player‑protection measures. The gap is therefore not only a law‑enforcement problem; it is fundamentally a competitive product and pricing problem — and that distinction matters for how Brazil ultimately closes the distance between regulation on paper and where players actually choose to bet.

Red dice and a “VAT” stamp illustrating how Colombia’s 19% tax on deposits reshaped the odds for licensed online operators.

Colombia: The Case Study That Regulators Cannot Ignore

Colombia is the market where the relationship between regulatory design and channelisation is most clearly visible, because in 2025 the country provided an unintentional but instructive demonstration of how quickly that relationship can break down.

The framework had been working. Since 2016, Coljuegos has issued tens of thousands of blocking orders against unauthorised gambling sites and, in 2025, implemented a streamlined system that allows it to require ISP‑level blocks directly, rather than acting through the Ministry of Information and Communications Technologies. Fourteen licensed online operators were active in the market, with RushBet becoming Colombia’s second‑largest operator by 2023, behind only BetPlay, on the back of strong year‑on‑year growth. Both sports betting and online casino were expanding, and while no single official headline figure for channelisation was published, industry participants widely regarded Colombia as one of the most highly channelled markets in Latin America.

Then, the February 2025 VAT measure applied a 19 percent tax to player deposits. For a market already paying gambling‑specific taxes on GGR, applying a full 19 percent VAT to deposits was unusual by international standards and effectively turned Colombia into a high‑turnover‑tax jurisdiction overnight. The effect was rapid and measurable: Coljuegos’ own data indicated that online GGR fell by around 30 percent within a few months. Players did not stop gambling; instead, many shifted to unlicensed sites that did not charge VAT and could therefore offer better‑value products. Codere Online publicly stated that the new conditions made further investment in Colombia impossible and halted expansion plans in the country. The blocking infrastructure that Coljuegos had spent nearly a decade building was made less effective, not because enforcement weakened, but because a pricing signal made the illegal channel the rational choice for a significant segment of players.
The January 2026 correction — shifting VAT from deposits to GGR — partially restores the competitive balance. Industry body Fecoljuegos described the change as recognising “for the first time, the true math of the business”, reflecting operator concerns that the previous design was unsustainable.

Even after the correction, however, a combined burden of one‑third of GGR, when VAT, the core gaming tax, and fixed fees are considered, remains high by international standards, and the speed of deterioration in 2025 has reset how many operators assess Colombian regulatory risk. That lesson — that tax‑base design, not just the nominal rate, is a channelisation variable — could hardly have been illustrated more clearly.

Mexico: Enforcement in a Fragmented Market

Mexico’s channelisation challenge is structurally different from Brazil and Colombia because the unlicensed ecosystem is not simply operating in parallel with the licensed one; in significant parts it is operating through many of the same channels and technologies. The Mexican Association of Entertainment and Betting Industry (AIEJA), an industry group representing licensed operators, has estimated that around 60 percent of online betting platforms serving Mexican players lack authorisation from the Ministry of the Interior (SEGOB). AIEJA has not published a full methodology for this figure, so it should be treated as an industry estimate rather than independently verified data. What is broadly accepted, however, is that dozens of platforms operating under international .com or .bet domains coexist with more than 30 operators holding valid SEGOB permissions — a parallel market that the current framework has not yet fully absorbed.

In November 2025, Mexican authorities blocked access to 13 online casino platforms — including Bet365. mx and Betano.mx, two internationally recognised brands — over suspected money laundering and unlicensed financial operations, acting on instructions from the Financial Intelligence Unit.”The episode showed how Mexican enforcement often sits at the intersection of gambling regulation and financial‑crime law, with measures that can affect licensed and unlicensed operators alike. In the same month, authorities ordered the closure of 13 land‑based casinos over alleged links to money laundering and organised crime. The online market has not yet reached a stable enforcement model that clearly distinguishes between compliance failures, criminal misuse of the channel, and a straightforward lack of gambling authorisation.

SEGOB is now running working groups on a new Federal Law of Games and Lotteries, with draft reform expected to reach Congress in 2026. Until that happens, the core legal framework being applied to digital betting products remains a law written in 1947 for a land‑based market of raffles, bingo halls and retail betting outlets. Enforcing a 78‑year‑old statute against mobile‑native betting platforms operating from multiple jurisdictions requires layers of interpretation that courts, regulators, and operators are still working through. For channelisation, that uncertainty matters: if licensed operators face enforcement risks and ambiguity that unlicensed .com brands can partially sidestep, the competitive equation tilts away from the domestic channel. In Mexico, as in Brazil and Colombia, the question is not only how authorities pursue illegal operators, but whether the combination of law, enforcement and product conditions makes the licensed route the most rational choice for both operators and players.

Three Markets, One Shared Problem

The enforcement data across all three markets points to the same underlying dynamic. Regulators can block sites, cancel bank accounts and issue ordinances; what they cannot do, through enforcement alone, is make a licensed product more attractive to a player who finds an unlicensed alternative faster, cheaper or with less friction.

Channelisation is ultimately a product and pricing competition, not just a policing exercise. The jurisdictions that have sustained high channelisation have done so with a blend of proportionate tax levels, a competitive licensed product range and targeted enforcement that removes the most egregious unlicensed operators without imposing a compliance burden so heavy that it prices licensed brands out of the equation. Brazil, Colombia and Mexico each have parts of that model in place — structured licensing, some degree of payment and ISP blocking, and clearer tax bases — but none yet has all three elements operating in balance.

Industry Implications

Whether channelisation in Brazil stabilises or improves in 2026 will depend in part on how far lawmakers move from headline approvals to practical, coordinated enforcement — including whether Bill No. 4044/2025, or similar measures, embeds consistent payment‑blocking and clearer liability for intermediaries at banking and platform level rather than relying mainly on DNS‑level action that players can easily bypass. Colombia’s recovery from its 2025 trough may prove faster than many operators first feared, given that the VAT correction directly addresses the main driver of player migration, but most are likely to wait for at least a full quarter of post‑correction data before restoring paused investment plans or re‑rating the market’s risk profile. Mexico’s proposed new Federal Law of Games and Lotteries, if advanced in 2026, could clarify responsibilities and enforcement tools for the online sector, but early reforms may focus more on tightening land‑based oversight and raising special gambling taxes than on resolving all uncertainties surrounding digital products.

For operators assessing regional entry, the emerging channelisation data has a specific practical implication: market share projections built on total gambling turnover figures can significantly overstate the size of the realistically addressable licensed market in the near term. The true addressable market is the channelled share — and in Brazil, Colombia, and Mexico, that share is still being established and remains sensitive to how each jurisdiction calibrates tax, product scope, and enforcement over the next few years.

Further Reading & Key Sources