The tobacco industry perfected a particularly effective argument in defense of its business: illicit trade as a reason to resist higher taxes and tighter regulation. The claim was that if legal cigarettes became too expensive or too heavily regulated, consumers would shift to the black market, governments would lose tax revenue and organized crime would gain ground.
There was truth in the argument, but it obscured a more important one. Smuggled cigarettes added tax evasion and criminal activity to a product that was already harmful when bought legally. The problem did not begin at the boundary between legal and illegal markets. It began with the product itself: cigarettes.
Brazil’s betting industry is beginning to discover the usefulness of the same reasoning. A study by LCA Consultoria Econômica, commissioned by the Brazilian Institute for Responsible Gaming, or IBJR, estimates that the illegal share of the market fell from 46% to 41% between 2025 and 2026, following the implementation of regulation. The IBJR cites the result as evidence that the regulatory framework is beginning to work and argues that there should be “no backsliding.” The institute says it represents about 75% of Brazil’s betting market.
Carlos Lima, the IBJR’s president, argues that an excessive tax burden could make licensed operators less competitive, give illegal platforms an advantage and push consumers toward the black market. The result, he says, would be lower “channelization” — the migration of bettors toward licensed companies — and potentially lower tax revenue. It is a familiar line of reasoning: do not squeeze the legal market too hard, because consumers may move to the illegal one.
The problem is when that observation becomes a kind of safe-conduct pass for the regulated product itself. The existence of a worse version does not make the legal version harmless. The LCA’s own figures illustrate the point. Among bettors classified as more exposed to the illegal market, 61% said they had at some point bet more than they felt they should. But even among the other respondents, the figure was 42%. Illegality appears to make the problem worse, but it comes nowhere close to explaining it.
That is where “channelization” reveals its limits as a metric. It measures where consumers gamble, not how much they wager, how much they lose, or the impact on household income, debt, health and family life. A country can successfully shift millions of bettors toward licensed operators and still end up with a larger and more socially damaging gambling market. Even the apparent precision of the 41% figure deserves caution: it is based on self-reported survey data and assumptions used by LCA to translate answers such as “most” or “a smaller share” of bets into estimates of illegal-market participation. Fighting unlicensed operators is necessary; they can add fraud, tax evasion, money laundering and weaker consumer protections. But making them the center of the debate risks obscuring the more fundamental question: what is the betting market itself — legal or illegal — doing to Brazilian households?
Smuggling never made cigarettes healthy. And an illegal betting platform does not make a legal one harmless.
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