Raising capital in regulated gambling and betting markets

Introduction

Raising capital in gambling and betting markets presents unique challenges and opportunities for entrepreneurs and investors alike. This rapidly growing and competitive industry has predictably attracted attention from venture capital and private equity firms. In 2024 alone, sports betting and online gambling companies raised US$150 million from venture capitalists in the United States. The influx of capital reflects growing confidence in the sector’s long-term viability, despite the complex regulatory frameworks that govern it across different jurisdictions.

While the U.S. has demonstrated high levels of activity, Europe’s online gambling market is experiencing steady growth, with an expected compound annual growth rate (CAGR) of 6.3 percent from 2025 to 2033. Additionally, the Latin American (LATAM) online gaming industry is projected to quadruple in size, reaching US$6.75 billion by 2027. These figures highlight a sector with significant investment potential, albeit within a complex regulatory landscape that requires careful navigation and strategic planning.

The global gambling market’s expansion has been fuelled by several factors, including technological advancements, shifting consumer preferences, and the gradual regulation of key markets. Mobile technology has dramatically increased accessibility, while innovations in payment processing, data analytics, and customer engagement have enhanced the user experience and operational efficiency. These developments have created new opportunities for entrepreneurs and investors, but they have also raised the bar for compliance, responsible gambling measures, and operational excellence. The challenges of raising capital in gambling and betting markets

Interest and investment from private equity (PE) and venture capital (VC) firms show the sector is becoming more investible. Despite its growth potential, however, raising capital in this space is not without obstacles. The industry operates under strict regulatory scrutiny, with compliance requirements varying significantly across jurisdictions. Companies seeking funding – whether through private equity, public offerings, or debt financing – must balance regulatory adherence, operational efficiency, and investor confidence. This is where a consolidated and experienced gaming and betting team with the relevant M&A and finance skills can support.

The gambling and betting sector faces unique challenges when it comes to raising capital. Unlike many other industries, gambling businesses must contend with a complex web of regulations that can vary dramatically from one jurisdiction to another. This regulatory fragmentation creates significant operational challenges and increases the cost of compliance, particularly for companies operating across multiple markets. Investors are acutely aware of these challenges and often require a higher risk premium when considering investments in the sector.

Moreover, the gambling industry still faces perception issues in some quarters. While attitudes have evolved considerably in recent years, some institutional investors remain wary of the sector due to concerns over problem gambling, money laundering, and other social issues. This can limit the pool of available capital, particularly from more conservative investors such as pension funds and certain types of family offices. Companies seeking investment must therefore be prepared to address these concerns head-on and demonstrate a strong commitment to responsible gambling and regulatory compliance.

Regulatory barriers

Regulatory challenges represent one of the most significant hurdles for capital-raising efforts in the gambling industry. These challenges include a complex array of requirements that vary by jurisdiction and can change rapidly as regulatory frameworks evolve. Understanding and navigating these barriers is essential for companies seeking to attract investment and scale their operations.

Stringent licensing requirements are perhaps the most fundamental regulatory challenge alongside advertising restrictions and high taxes. Operators must obtain and maintain licenses in each jurisdiction in which they operate. This often involves meeting extensive compliance and reporting obligations with complexity increasing significantly with each jurisdiction added. The licensing process typically includes thorough background checks on key personnel, financial stability assessments, and technical certification of gaming platforms. Maintaining these licenses requires ongoing compliance with a host of operational standards and regular reporting to authorities. The cost of obtaining and maintaining licenses can be substantial, creating significant barriers to entry for new market participants.

Taxation policies represent another significant regulatory challenge. Varying tax structures across regions can impact profitability and the attractiveness of investment opportunities. Some jurisdictions impose high gaming taxes or additional levies on gross gaming revenue, which can erode margins and complicate cross-border operations. Tax rates can range from single digits to over 30 percent of gross gaming revenue in some markets, creating significant disparities in profitability across different jurisdictions. Investors must carefully consider the tax implications of operating in different markets when evaluating investment opportunities.

Anti-money laundering (AML) regulations add another layer of complexity. Compliance with AML policies requires robust Know Your Customer (KYC) procedures and ongoing transaction monitoring. Operators must implement systems to detect suspicious activities, report them to authorities, and maintain detailed records of customer transactions. This necessitates significant investment in compliance technology and staff training, with failure to comply resulting in severe fines and reputational damage. The Financial Action Task Force (FATF) and other international bodies have established standards for AML compliance, but the specific requirements can vary by jurisdiction, adding to the complexity of operating across multiple markets.

Responsible gambling measures have become increasingly important in recent years. Operators must demonstrate a commitment to player protection, including self-exclusion programs and adherence to strict advertising standards. This includes implementing systems to identify and support vulnerable players, setting deposit and betting limits, providing access to support resources, and ensuring that marketing materials do not target minors or problem gamblers. Failure to uphold responsible gambling standards can result in regulatory sanctions, reputational damage, and loss of investor confidence.

The complexity of regulatory environments is a powerful deterrent to investors who remain cautious about legislative shifts, market restrictions, and the potential monetary and reputational costs of compliance failures. Companies must proactively manage regulatory risks not only to ensure continuing compliance, but also to maintain investor confidence. This requires a deep understanding of the regulatory landscape in each target market, strong relationships with regulatory authorities, and the ability to adapt quickly to changing requirements. In particular, this applies to innovative gaming propositions that are borderline to “regulated gambling”.

Key funding options

The available funding options fall into three main categories: private equity, public listings and debt. Although not strictly a fundraising option, M&A will often play a part in capital raising. The different funding options present distinct advantages and challenges for gambling and betting companies. Understanding the landscape of capital sources is crucial for companies looking to scale their operations and achieve their strategic objectives.

Private Equity and Venture Capital

PE and VC firms play a significant role in funding the gaming and betting industry, particularly in the online and technology-driven segments. These investors bring not only capital but also strategic guidance, industry connections, and operational expertise. However, they also have specific investment criteria and expectations that companies must meet to secure funding.

Investors in this space typically seek scalable business models with high growth potential. They are attracted to companies that can demonstrate a clear path to scaling their operations, either by expanding into new markets, developing innovative products, or increasing market share in existing markets. The ability to scale efficiently is particularly important in the gambling industry, where compliance costs can easily spiral.

Expansion opportunities into emerging and profitable markets, such as Latin America, are also highly valued by PE and VC investors. These markets often present significant growth potential due to their large populations, increasing internet and smartphone penetration, and evolving regulatory frameworks. Companies that can demonstrate a clear strategy for entering and succeeding in these markets are more likely to attract investment.

Strong revenue diversification strategies to mitigate regulatory risks are another key consideration for investors. Companies that rely heavily on a single market or product line are vulnerable to regulatory changes that could significantly impact their business. Diversification across multiple jurisdictions, product types, and customer segments can help mitigate these risks and make a company more attractive to investors.

The distinction between VC and PE investment lies primarily in the stage of maturity of their target companies. VC firms typically invest in earlier-stage, high-risk ventures with innovative business models, whereas PE firms focus on more mature businesses with stable cash flows and proven market traction. It should be no surprise that VC funding will often come from individuals and funds with experience of operating in the gaming and gambling industry. They are better able to judge the potential of a venture and often have a higher appetite for risk than those without direct exposure to the sector.

Early-stage companies seeking VC funding should focus on demonstrating innovation, market potential, and a clear path to profitability. More mature companies seeking PE investment should emphasize stable cash flows, market leadership, and opportunities for operational improvement and strategic expansion. In both cases, a strong management team with industry experience is essential for attracting investment.

Public listings and IPOs

Public listings provide companies with access to significant capital inflows, enhancing their credibility, and broadening their investor base. Going public can be a transformative event for a gambling company, providing the capital needed for major expansion initiatives and creating liquidity for early investors and employees. However, the process is complex, time-consuming, and subject to market conditions, which, as of today, are nothing but volatile.

Traditional initial public offerings (IPOs) involve a rigorous process of financial auditing, legal due diligence, and regulatory filings. Companies must prepare detailed prospectuses that disclose all material information about their business, financial performance, and risk factors. The process typically takes several months and involves significant costs, including underwriting fees, legal expenses, and accounting costs.

In recent years, Special Purpose Acquisition Companies (SPACs) have emerged as an alternative to traditional IPOs in the industry, although their popularity has fluctuated. SPACs are publicly traded shell companies that raise capital with the sole purpose of acquiring a private company, effectively taking it public through the merger. This approach can be faster and more straightforward than a traditional IPO, but it also has its own challenges and considerations.

The success of future listings, such as the anticipated CIRSA IPO, will depend on market conditions, investor sentiment, and broader economic factors. Companies considering a public listing must carefully assess the timing of their offering, the valuation they can achieve, and the ongoing costs and obligations of being a public company.

While public markets offer liquidity and visibility, they also subject companies to heightened regulatory scrutiny and reporting requirements. Public companies must file regular financial reports, disclose material events, and comply with corporate governance standards. For gambling companies, this includes detailed reporting on regulatory compliance, responsible gambling measures, and risk management practices. The increased transparency and accountability can be beneficial for building trust with stakeholders, but it also requires significant resources and can expose the company to greater public and regulatory scrutiny.

Debt financing

Debt financing is a viable option for gambling companies with stable cash flows and a strong financial track record. Unlike equity financing, debt allows companies to raise capital without diluting ownership, making it an attractive option for established operators with predictable revenue streams. However, it also comes with obligations to repay the principal and interest, which can create financial strain during downturns or regulatory disruptions.

Lenders evaluate gambling businesses based on several key factors. Compliance with regulatory requirements is paramount, as regulatory violations can result in fines, license suspensions, or even revocation, which would severely impact the company’s ability to repay its debt. Revenue streams and profitability are also crucial considerations, with lenders looking for stable, diversified income sources that can support debt servicing even in challenging market conditions. Risk exposure across different markets is another important factor, as lenders assess the company’s vulnerability to regulatory changes, competitive pressures, and market fluctuations.

In addition to traditional bank loans, larger gaming firms have issued bonds and structured debt to finance expansion efforts. Corporate bonds can provide access to larger amounts of capital and longer repayment terms than bank loans, making them suitable for major expansion initiatives or acquisitions. Structured debt, such as senior secured notes or convertible bonds, can offer more flexible terms that align with the company’s specific needs and circumstances.

While debt financing allows companies to retain ownership, excessive leverage can increase financial risk, particularly in volatile markets. Gambling companies must carefully balance the benefits of debt financing with the potential risks, ensuring that their debt levels remain manageable even in adverse scenarios. This requires robust financial planning, stress testing, and risk management practices.

Mergers and Acquisitions (M&A)

M&A activity has surged in the gambling industry, with larger operators acquiring smaller firms and pursuing vertical integration strategies. This consolidation trend reflects the increasing maturity of the industry, the benefits of scale in managing regulatory compliance, and the strategic advantages of offering a comprehensive suite of products and services.

Common motivations behind M&A deals include strengthening market positions through horizontal integration. By acquiring competitors, companies can increase their market share, achieve economies of scale, and enhance their bargaining power with suppliers and partners. This can be particularly valuable in markets with high regulatory barriers to entry, where organic growth may be slow and costly.

Expanding into new verticals or geographies is another key driver of M&A activity. Acquisitions can provide immediate access to new markets or product categories, bypassing the lengthy process of building these capabilities from scratch. For example, a sports betting operator might acquire an online casino to diversify its product offering, or a company with a strong presence in one region might acquire an operator in another region to expand its geographical footprint.

Acquiring and integrating innovative technologies to enhance competitiveness is increasingly important in the digital gambling sector. Technology-driven acquisitions can provide access to proprietary platforms, data analytics capabilities, customer engagement tools, or other innovations that can create competitive advantages. These acquisitions can be particularly valuable in a rapidly evolving industry where technological leadership can translate into market leadership.

Accelerating entry into new and attractive markets through strategic acquisitions is a common strategy for companies looking to expand internationally. Acquiring an established operator in a target market can provide immediate access to licenses, local expertise, and an existing customer base. This can significantly reduce the time and cost of entering a new market compared to starting from scratch.

Meeting local ownership requirements in certain jurisdictions is another consideration for M&A activity. Some countries require gambling operators to have local partners or limit foreign ownership, making acquisitions or joint ventures the only viable entry strategy. By acquiring a local company or forming a strategic partnership, international operators can comply with these requirements while benefiting from local knowledge and connections.

Companies looking to attract capital must position themselves as attractive acquisition targets or merger partners by demonstrating strong operational capabilities and growth potential. This includes building a solid track record of regulatory compliance, developing proprietary technology or other competitive advantages, establishing a strong brand and customer base, and showing potential for synergies with potential acquirers.

Strategies for successful fundraising

Successfully raising capital in a competitive and regulated environment requires a strategic approach that addresses investor concerns while showcasing long-term growth potential. Companies must demonstrate not only their ability to generate returns but also their capacity to navigate regulatory complexities, manage risks, and build sustainable competitive advantages.

Governance, compliance, and transparency

Investors prioritize companies with strong governance frameworks, transparent reporting practices, and robust compliance measures. To build credibility, companies should maintain a well-structured corporate governance framework. This includes a clear separation of duties, independent oversight, and effective risk management processes. The board of directors should include individuals with relevant industry experience, regulatory knowledge, and financial expertise. Clear policies and procedures should be in place for decision-making, conflict resolution, and ethical conduct.

Implementing stringent financial and regulatory reporting standards is essential for transparency and investor confidence. Companies should adopt internationally recognized accounting standards, conduct regular audits, and provide detailed financial reports that go beyond the minimum regulatory requirements. Regulatory reporting should be comprehensive, timely, and accurate, demonstrating the company’s commitment to compliance and transparency.

Ensuring adherence to all licensing and AML requirements is non-negotiable for companies seeking investment. This includes maintaining robust KYC procedures, transaction monitoring systems, and reporting mechanisms. Companies should be able to demonstrate a strong track record of compliance and a proactive approach to addressing regulatory changes and emerging risks.

Differentiation and competitive advantage

Companies must highlight their unique value propositions to stand out in a crowded market. With increasing competition in the gambling industry, differentiation is essential for attracting both customers and investors. Companies must identify and communicate their competitive advantages clearly and convincingly.

Market access is a key differentiator, as securing licenses and regulatory approvals in multiple jurisdictions enhances investor confidence. Companies that have successfully navigated the licensing process in multiple markets demonstrate their ability to manage regulatory complexity and expand their operations. This is particularly valuable in markets with high barriers to entry, where licenses are limited or difficult to obtain.

Technological innovation is another important differentiator. Proprietary gaming platforms, artificial intelligence-driven personalization, and blockchain-based solutions can set a company apart from its competitors. These innovations can enhance the user experience, improve operational efficiency, and create barriers to entry for competitors. Whilst we may see the industry is now relatively mature, it is clear that technological changes will continue to drive innovation and opportunity for many years to come.

Operational efficiency is a critical factor for success in the gambling industry. Streamlined payment processing, risk management systems, and responsible gambling tools contribute to scalability and sustainability. Companies that can demonstrate superior operational performance have a competitive advantage that can translate into higher profitability and growth potential.

Addressing operational challenges

Operational limitations can hinder scalability and impact investor confidence. Companies must proactively tackle challenges that could impede their growth or create vulnerabilities. By addressing these issues head-on, companies can demonstrate their operational resilience and readiness for expansion.

Payment processing and banking relationships are critical operational considerations. Establishing reliable payment channels and maintaining strong banking relationships can be challenging in the gambling industry, particularly in jurisdictions where gambling is stigmatized or restricted. Companies must develop strategies for managing payment processing risks, such as diversifying payment providers, implementing robust fraud detection systems, and maintaining transparent relationships with financial institutions.

Deposit and betting constraints in different markets can impact customer acquisition and retention. Companies must understand and adapt to local regulations regarding deposit limits, betting caps, and payout requirements. This may require customizing their platforms and processes for each market, which can increase operational complexity and costs. Companies that can efficiently manage these variations while providing a seamless customer experience have a competitive advantage.

KYC and AML compliance hurdles can create friction in the customer onboarding process and increase operational costs. Companies must implement efficient verification processes that balance regulatory requirements with customer convenience. This may involve adopting advanced identity verification technologies, risk-based approaches to customer due diligence, and automated monitoring systems.

Customer acquisition and retention strategies in regulated environments require a deep understanding of local market dynamics, customer preferences, and regulatory constraints. Companies must develop targeted marketing approaches that comply with advertising restrictions while effectively reaching their target audience. Loyalty programs and customer engagement initiatives must also be designed with regulatory requirements in mind, particularly those related to responsible gambling.

Strategic partnerships

Collaborating with established industry players, technology providers, and regulatory consultants can strengthen an investment case. Strategic alliances can provide access to complementary capabilities, market knowledge, and regulatory expertise, enhancing a company’s competitive position and growth prospects.

Strategic partnerships can enhance credibility and market positioning, particularly for newer or smaller companies. By associating with respected industry players or technology providers, companies can signal their legitimacy and potential to investors. These partnerships can also provide valuable endorsements and references during the fundraising process.

Accelerating regulatory approvals and licensing processes is another benefit of strategic partnerships. Working with experienced regulatory consultants or local partners can help navigate the complexities of licensing applications and compliance requirements. This can reduce the time and cost of entering new markets, accelerating growth and improving returns on investment.

Improving technological capabilities and customer experience through partnerships with technology providers can create significant competitive advantages. These partnerships can provide access to cutting-edge technologies, specialized expertise, and development resources that might be difficult or costly to build in-house. By leveraging these partnerships, companies can enhance their product offerings, operational efficiency, and customer engagement.

The role of specialized investors

Given the regulatory complexities of the gambling industry, companies benefit from partnering with investors who understand the sector. PE and VC firms specializing in gaming and betting bring not only capital but also industry knowledge, regulatory expertise, and valuable connections. These specialized investors can provide strategic guidance, operational support, and access to networks that generalist investors may not offer.

Specialized investors are more likely to overcome perception issues commonly associated with the industry. They understand the legitimate nature of regulated gambling and are comfortable with the sector’s unique characteristics and challenges. This can be particularly valuable when seeking co-investment from more conservative investors who might otherwise be hesitant to enter the gambling space.

Conducting thorough due diligence while recognizing long-term value is another strength of specialized investors. They can more accurately assess the potential of a gambling business, understanding the nuances of regulatory compliance, market dynamics, and technological innovation. This can lead to more realistic valuations and investment terms that reflect the true potential of the business.

Providing strategic guidance and industry connections is perhaps the most valuable contribution of specialized investors beyond their capital. They can help companies navigate regulatory challenges, identify growth opportunities, and connect with potential partners, customers, and acquisition targets. This guidance can be particularly valuable for companies entering new markets or developing innovative products.

Companies must be prepared for rigorous due diligence processes and should adjust their valuation expectations accordingly. Investors focus on revenue sustainability and risk-adjusted returns, looking for stable, diversified income streams that can withstand regulatory changes and market fluctuations. They also assess compliance track records and market adaptability, evaluating the company’s history of regulatory adherence and its ability to adapt to changing requirements. Clear performance metrics and key performance indicators (KPIs) are essential for demonstrating the company’s operational effectiveness and growth potential.

Country-Specific Insights

Europe

The United Kingdom still leads the European gambling market, with popular games including roulette, blackjack, poker, and slot machines. The UK has one of the most developed and comprehensive regulatory frameworks for gambling, covering both land-based and online operations. The market is characterized by strong competition, high levels of innovation, and significant investment in responsible gambling measures.

Regulatory oversight in Europe is stringent, particularly in countries like the UK, where the Gambling Commission enforces strict licensing conditions. The Commission has been increasingly active in recent years, imposing significant fines for regulatory violations and raising standards for responsible gambling, AML compliance, and advertising. Operators must continuously monitor regulatory developments to maintain compliance and competitiveness.

Latin America

The LATAM region presents significant growth opportunities for gambling operators and investors. The region’s large population, increasing internet and smartphone penetration, and evolving regulatory frameworks create favorable conditions for market expansion. However, the regulatory landscape is complex and varies significantly across countries. Brazil may have attracted a lot of the headlines in recent months, as it finalizes its regulatory framework for sports betting and anticipated casino. The country’s large population and strong interest in sports make it a particularly attractive market for operators. However, the regulatory process has been lengthy and complex, with multiple delays and changes in approach.

Other key markets in the region are showing impressive expansion led by Mexico, Peru and Argentina.

Regulatory frameworks across LATAM are evolving, with Brazil and Peru playing a pivotal role in shaping the region’s gambling and betting regulation. Some will follow suit like Ecuador and Chile, creating a wave of regulatory development across the region. Mexico is, by far, one of the biggest and more attractive markets and will continue to take shape in the wake of a new government.

Investors and operators alike must stay informed about emerging regulations and market entry requirements in order to tackle value creation. This requires ongoing monitoring of regulatory developments, engagement with local stakeholders, and flexibility in adapting to changing requirements. Companies that can navigate these complexities effectively will be well-positioned to capitalize on the region’s growth potential.

Conclusion

Raising capital in regulated gambling and betting markets is a complex yet rewarding endeavor. The industry’s growth potential is undeniable, but success requires navigating a complex regulatory landscape, addressing operational challenges, and building strong relationships with investors who understand the sector’s unique characteristics.

Companies that meet the regulatory challenges, differentiate their offerings, and establish strong investor relationships will position themselves for long-term success. This requires a comprehensive approach that addresses all aspects of the business, from regulatory compliance and technological innovation to operational efficiency and strategic partnerships.

Drawing from personal experience as both a board member and legal advisor, the keys to success include building a strong, experienced leadership team with a deep understanding of the industry and its regulatory requirements. Developing a comprehensive business model and pitch deck that clearly articulates the company’s strategy, market opportunity, and competitive advantages is essential for attracting investor interest.

Highlighting differentiating factors such as market access and technology can set a company apart in a crowded field. Companies should emphasize their unique strengths, whether that’s proprietary technology, exclusive licenses, strategic partnerships, or operational excellence. Addressing operational challenges that impact scalability is critical for demonstrating the company’s readiness for growth and ability to deliver returns on investment.

Partnering with specialized investors who understand the industry’s nuances can provide not only capital but also valuable guidance, connections, and support. These investors can help companies navigate regulatory complexities, identify growth opportunities, and overcome challenges that might deter more generalist investors.

By striking the right balance between risk management and growth potential, companies can thrive in an industry poised for continued global expansion. The gambling and betting sector offers significant opportunities for entrepreneurs and investors who can navigate its complexities and capitalize on its growth potential. With the right approach to capital raising, companies can secure the funding they need to achieve their strategic objectives and build sustainable, successful businesses in this dynamic and evolving industry.