When states began legalizing and launching online sports betting and casino gaming, part of the intention was to direct users to safer, more-controlled and regulated products as opposed to illegal and unregulated offerings.
According to a new report from the American Gaming Association, however, customers continue to frequent those illegal establishments.
All told, per the AGA, Americans gamble some $511 billion each year through unregulated sportsbooks, iGaming sites and so-called “skill games.”
Illegal sports betting, iGaming cutting into state tax revenues
According to the AGA report, this illegal gambling “robs” state governments of an estimated $13.3 billion in annual tax revenue. That total equates to nearly $2.5 billion more than legal operators generated in 2021. In addition, it costs legal gambling entities $44.2 billion in annual revenue.
“Illegal and unregulated gambling is a scourge on our society,” Bill Miller, president and CEO of the AGA, said in a press release, “taking advantage of vulnerable consumers, skirting regulatory obligations and robbing communities of critical tax revenue for infrastructure, education and more.
“We have always known that the illegal and unregulated market is expansive, but this report illuminates just how pervasive it is.”
Breaking down sports betting, iGaming estimates
The AGA tasked The Innovation Group with conducting the study. It included a survey of 5,284 US adults that examined their gambling behaviors over the past year. The study also included data that detailed the size of the legal US gaming market.
| Market | Estimated handle | Estimated revenue | Estimated state tax loss |
|---|---|---|---|
| Sports betting | $63.8 Billion | $3.8 Billion | $700 Million |
| Online Slots and table games | $337.9 Billion | $13.5 Billion | $3.9 Billion |
| Unregulated machines | $109.2 Billion | $26.9 Billion | $8.7 Billion |
Sports betting
While legal sports betting has expanded to 37 US jurisdictions, including the launch of NY sports betting, Americans still found their way to illegal sportsbooks, bookies and offshore sites.
The AGA report estimated that Americans wagered $63.8 billion with illegal bookies and offshore sportsbooks. This led to $3.8 billion and $700 million in lost legal revenue and state tax revenue, respectively. For perspective, projections indicated that Adults would legally bet $100 billion this year.
On top of that, the report showed that 49% of bettors did so with an illegal operator. Previously, AGA research showed that more than half of Americans wagered illegally, indicating a downward trend.
Online casino, table games
Online casino gaming exists legally in just six states at the moment. Others, though, could join the fold soon, that includes the potential legalization of NY online casinos in 2023.
That said, with minimal legal options for iGaming, American adults have gone to unregulated platforms. And as a result, the illegal iGaming market is three times the size of legal online casino gaming.
According to the AGA report, adults bet an estimated $337.9 billion via illegal iGaming sites, generating $13.5 billion in revenue. In the legal US online casino market, revenues reached an estimated $5 billion in 2022.
Unregulated “skill machines”
It’s not difficult to come across news stories of law enforcement shutting down establishments with illegal and unregulated “skill machines” in America. The AGA estimates that over 580,000 exist in the US, representing about 40% of all gaming machines across the country.
The win percentages for these machines far exceed the legal options. For example, Nevada slots have a 7.16% win rate compared with the 25% rate for unregulated machines.
As a result, these “skill machines” generated an estimated $26.9 billion in revenue. That leads to $8.7 billion in lost state tax revenue.
“All stakeholders — policymakers, law enforcement, regulators, legal businesses — must work together to root out the illegal and unregulated gambling market,” Miller said. “This is a fight we’re in for the long haul to protect consumers, support communities and defend the law-abiding members of our industry.”
