Gray market impact on gambling industry in Latin America: The case of Chile and Guatemala

Despite the active implementation of a modern legal framework for gambling regulation, there is still a very large gray market in Latin America. Why do players continue to choose offshore operators even when licensed brands are available, and how can the situation be steered toward a more controlled environment?

Chile and Guatemala: Why markets remain mostly gray

Legal operators in Latin America are notable for their advanced player-protection technology. For example, 34% of the region’s “white” operators use AI for monitoring, and KYC levels reach 84%, higher than in many other regions. At the same time, legislative inaction in some Latin American countries allows gray-market operators to work freely with little attention to player protection.

Chile is a clear example of a country with a regulatory gap in gambling. The lack of clear rules has enabled one of the largest gray markets in Latin America to thrive in the country.

Chilean regulators are aware of the problem and have been working on a new gambling law since 2022. However, numerous political and economic factors continue to hinder the finalization and implementation of the new legislation.

It is currently planned that gray operators will have a 12-month cooling-off period, during which they must leave the Chilean market. To obtain a license after this transition period, illegal operators must pay any tax debts accrued during their illegal operations in the country.

It remains unclear in what form the new legislation will be adopted and how operators will respond to potential penalties. If the regulator fails to enforce the new rules, operators may continue working without licenses, and the gray market in Chile could persist.

Gambling in Guatemala is regulated by local laws adopted back in the 19th century. Lotteries are the exception, and some gambling operators take advantage of this by getting licenses from legal lottery operators. Other operators work without such permits, creating a large “gray” gambling market.

Despite the active growth of the online gambling segment, lawmakers in Guatemala do not plan to adopt a new law in the near future. If this approach continues, Guatemala may remain without modern player protection tools for a long time.

Despite the different gambling situations in Chile and Guatemala, these two markets share passive responses to market changes and weak government control over financial flows.

Risks for key industry stakeholders

The gray gambling market creates problems for all industry participants. Customers of illegal operators, for obvious reasons, do not get adequate protection. In addition, the lack of effective responsible gambling training programs at gray operators leads players to see gambling as a way to earn money rather than as entertainment.

Legal operators in Latin America face unfair competition because offshore operators avoid paying taxes and underinvest in player safety. This undermines the efforts of responsible licensed operators and could eventually force them out of the market.

Countries that are unwilling or unable to give gambling operators clear rules are effectively pushing the sector into the gray area. Another key factor blocking legalization is high tax pressure. Instead of raising state revenue, taxes are lost as some operators go underground and others leave the market because it’s no longer profitable.

Solutions and role of technology

The most effective move against the gray market is to modernize legislation to reflect current realities. In this case, Brazil can serve as a clear example for Chile and Guatemala, where, after moving to full state regulation in 2025, the gray market almost disappeared, and tax revenue from legal operators exceeded $7 billion.

A critically important factor for legalization is the digitalization of the gambling sector. Thanks to a few countries, the entire Latin American region leads in real-time monitoring (69%) and KYC checks (84%). Expanding high-tech solutions to other countries in the region and raising service standards accordingly could help push out illegal operators.

Latin America has historically taken a very liberal approach to restricting advertising and bonuses (only 16% of restrictions). This factor can and should be used to attract players to legal operators.

Conclusion

Clearly, the gray market in some Latin American countries is a temporary stage that harms the long-term development of the entire region’s gambling sector. An uncontrolled legal environment affects everyone as it leads to lost tax revenue for the government, unfair competition for legal operators, and neglect of player protection.

In a region where players too often confuse gambling for fun with investing, this gap is especially critical.

There is only one conclusion: countries in which the “gray” market still dominates must follow the example of neighbors that have successfully developed and implemented a regulated environment. The successful cases of some countries should become the basis for new laws in others. The process will speed up if regulators in Latin America coordinate their efforts more actively to create a single safe space for players. In such an environment, it will be much easier for people to earn extra income from gambling by using affiliate networks, such as 1xPartners.