Waterhouse VC: Unstoppable Force

Every month, industry investors Waterhouse VC publish an article that spotlights different aspects of the ecosystem. This month, Tom Waterhouse delves into the unstoppable force.

New Zealand gave the world Jonah Lomu. When he hit full stride, he was almost impossible to stop. The country’s gambling market has met a similar force. Customers bypassing domestic channels for offshore sites that sit beyond regulatory reach. Once it gets going, enforcement struggles to make a tackle.

If people want access to something online, supply will find them. The most credible counter to offshore leakage is giving the regulated market the conditions to compete. For APAC, New Zealand is shaping up as the test case. Five million people, high disposable income, near-universal internet penetration, and estimates of up to NZ$800 million already flowing offshore annually. For Waterhouse VC, it is a signal of opportunity. If they get it right, others will pay attention.

Grey vs All Black

New Zealand's legal gambling market spans sports and racing through TAB NZ, lotteries through Lotto NZ, five land-based casinos, and roughly 14,500 pokie machines in pubs and clubs. Legal online casino is the gap. It has been legal for New Zealanders to gamble on offshore sites for two decades, but illegal to operate one domestically or advertise in the country. Customers still find them.

Recent media scrutiny highlights younger generations, particularly university students, engaging with these sites. In July 2025, the Department of Internal Affairs (DIA) warned 10 students for promoting them for financial gain. The pipeline from casual user to paid affiliate is shortening, and without comprehensive regulation, intervention options remain limited.

The government now has hard numbers. A 12% Offshore Gambling Duty has applied since July 2024 to offshore operators serving New Zealand residents, excluding sports and racing betting. The duty is levied on ‘offshore gambling profits’ - effectively GGR, (stakes minus winnings, before tax and costs). In the 12 months to 30 June 2025, operators declared NZ$520.8 million of liable GGR, paying NZ$62.5 million in duty. Only twenty-six entities were registered, and the top five accounted for 89.6% of liable revenue.

That is roughly NZ$10 million a week in player losses flowing offshore, and almost certainly an undercount. Duty returns capture the compliant slice of the market. The duty behaves like an honesty tax, paid by the largest and most visible firms while the rest ignore it.

In Australia, where online casino and live in-play betting are banned, the illegal offshore market reached A$3.9 billion in 2024 and is tracking toward A$5 billion by 2029 (Responsible Wagering Australia). Offshore operators now account for 36% of all online gambling, the onshore channelisation rate has fallen from 74% to 64% in three years, and half of those gambling offshore have done so while registered on BetStop, the national self-exclusion system (Australia Offshore Market Analysis 2025, Responsible Wagering Australia). Whether grey or black is the label, the dynamic is the same.

The Great Wall

Even China can’t stop it. Gambling is banned and the internet is controlled, yet in 2024 China’s Ministry of Public Security said it dismantled more than 4,500 illegal online gambling platforms.

Despite heavy enforcement, the market remains fluid: domains rotate, payments reroute, and consumers bypass blocks with proxies and VPNs. The United Nations Office on Drugs and Crime (UNODC) puts the global illegal betting market at up to US$1.7 trillion wagered annually. It is a whack-a-mole where the moles multiply faster than the hammer can swing. If even China can’t contain it, that says plenty about the limits of enforcement alone.

That leaves governments with three options. Ignore it, letting tax revenue and consumer protections drain offshore. Fight it, spending more each year on enforcement that to date, has struggled to keep pace. Or face it, and build a legal market compelling enough that customers choose it voluntarily. New Zealand is signalling it wants door three, with enabling legislation now moving through Parliament.

The Channelisation Aim

“My hope is that Kiwis will gamble in a safer regulated market than we currently have, with harm minimisation standards and we will have consumer protection standards”

- Brooke van Velden, Internal Affairs Minister

The scope remains narrow, focusing exclusively on online casinos. Lotteries will remain under the jurisdiction of the Lotteries Commission, land-based casinos under existing law, and sports and racing betting exclusively with TAB NZ. That exclusivity was cemented in June 2025, when amendments to the Racing Industry Act banned all other operators from offering online sports or racing betting into New Zealand on an extraterritorial basis.

TAB NZ, operated by Entain under a 25-year partnership, delivered an estimated NZ$200 million to the racing codes in FY23/24, yet an estimated NZ$180 million a year was still flowing offshore prior to the ban. The casino reform does not target that leakage directly. But offshore operators run full-service platforms. A customer who goes offshore for slots is one click from an integrated sportsbook. Win back casino play and you shrink the entire offshore ecosystem.

The Framework

The Online Casino Gambling Bill was introduced on 30 June 2025, passed its first reading on 15 July, and is awaiting its second reading. The Act is expected to commence on 1 May 2026, triggering a ban on advertising by unlicensed operators and lifting penalties. Under the indicative timeline, Fifteen licences, capped at three per operator, will be allocated in three stages: expressions of interest in July 2026, auction in September, applications from October. From 1 December 2026, operators must have applied for a licence or exit the market. Applicants can continue operating until a decision is reached, or 1 June 2027 at the latest. The regime reaches offshore with fines up to NZ$300,000 for individuals and NZ$5 million for corporates, additional take-down powers, and the ability to pursue unlicensed operators regardless of jurisdiction.

The strongest opposition came from community organisations concerned online casinos would cannibalise pokies revenue. Pokie operators must return at least 40% of gross profits to community purposes, roughly NZ$300 million a year. The government responded by lifting the offshore gambling duty from 12% to 16% from January 2027, with the additional 4% ring-fenced for community returns.

Consumer protections include identity verification, spending limits, self-exclusion, a credit card deposit ban, advertising restrictions, and bonus controls.

Goldilocks

Regulation can boost state coffers, but it does not guarantee channelisation. Jarden forecast annual gross betting revenue of NZ$650 million assuming all 15 licences are issued, with NZ$474.5 million in net revenue after a 27% tax burden (including GST). That estimate preceded the government's confirmation of the additional 4% community levy.

Ontario, Canada shows what a competitive legal offer can achieve. Three years after opening its regulated iGaming market in April 2022, 83.7% of respondents who had gambled online in the past three months reported wagering on regulated sites (Ipsos survey for iGaming Ontario and AGCO, fieldwork 30 January to 19 February 2025). The province has generated CAD$2.04 billion in tax revenue since launch.

The UK shows what happens when friction accumulates. Financial risk checks have already weighed on licensed operators, and that is before remote gaming duty increases from 21% to 40% in April 2026.

If New Zealand gets the balance right, it becomes the blueprint for the region.

Opportunity

New Zealand's direction is built on a realistic constraint - enforcement alone cannot keep pace with an internet-native market. The sustainable lever is making the legal market the default by being safer, simpler, and good enough that most customers stay.

When a market turns toward regulation, demand becomes recurring for the infrastructure that makes compliance and trust possible. That is where Waterhouse VC specialises. We are actively scouting businesses positioned to serve the eventual New Zealand licence winners and, if the model proves successful, the broader wave of APAC markets that may follow.