Research from the American Gaming Association shows the staggering scope of illegal gambling: Americans wager more than $673 billion annually with unlicensed operators, generating nearly $54 billion in revenue for the underground market.
Even more concerning, the illegal gaming sector has expanded by 22% since 2022, according to a report this month from the association.
“The result of that is, of course, lost revenue for the industry, but also $15 billion in lost tax revenue for state and local governments across the country,” said Dave Foreman, vice president of research at the gaming association. “And that’s money that can’t go to schools or police departments or fire departments or property tax reduction. So every dollar that’s lost to illegal gaming to these offshore operators is a dollar that can’t be reinvested locally.”
Research findings
The analysis pointed to three main drivers of the illegal gaming market’s growth — illegal or unregulated iGaming, sports betting and skills machines. Illegal gaming’s piece of the U.S. gaming market pie overall has remained the same at nearly one-third since 2022.
IGaming is the fastest- growing, said Foreman, who attributed that to its lack of legal availability in the U.S. IGaming is any form of gambling online — like slots, blackjack, poker and roulette. It also includes online sports betting and daily fantasy.
IGaming has grown by nearly 40% since the AGA’s last report on the illegal U.S. market in 2022. In many states, both skill games and iGaming lack legal competition and thus are growing relatively unimpeded, Foreman said.
“A few years have passed, and it’s a bit of a different world now,” Foreman said. “Sports betting has expanded quite widely. IGaming has expanded a little bit. … Proliferation of these unregulated machines also expanded.”
According to the association’s report, there are more than 625,000 unregulated skill machines across the country. In terms of the illegal market, Foreman said, that’s almost 40% of all the machines in the U.S.
“So it’s a huge problem, especially since they’re located in a lot of convenience locations,” he said, “right next to candy aisles, where a lot of underage folks are buying Combos and Reese’s peanut butter cups.”
Due to the widespread legalization of sports betting — it’s now available in nearly 40 states — Foreman said the share of the U.S. sports betting market being captured by illegal operators actually has fallen. Only about a quarter of the U.S. sports betting market is being captured by illegal operators, he said.
Illegal gaming defined
Alan Feldman, director of strategic initiatives at UNLV’s International Gaming Institute, defined illegal gaming as gaming in a place where there is no law that permits the activity and has no credible licensing and taxation structure.
The biggest difference between legal and illegal gaming, he said, is the cost to operate. Illegal gaming can be operated out of someone’s garage on a laptop, Feldman said, and even if the operation grows and eventually requires additional servers, those are easily attainable.
Illegal gambling operations require no licensing, he said, and have no regulatory or tax expenses. The result is that the public in that jurisdiction is cheated out of the benefits that gaming might derive, so that the whole economic profile changes. Illegal companies can ultimately offer better odds and higher paybacks — placing the legal, regulated industry at a huge disadvantage, he added.
“For us in the U.S. … there is virtually no distinction,” Feldman said. “I mean, if you, right now, went online, you would probably not be able to discern which of the online casinos that pop up are legal and which ones aren’t.”
With illegal gaming, however, there are no consumer safeguards, Feldman emphasized. Illegal operators do nothing as it relates to responsible gaming, and there’s no certainty of a payout.
“The fact is that, on any given day, they could decide on their own not to pay out something,” he said. “And you have no recourse.”
Illegal gaming sites will have payment processor and league logos on their web pages, Foreman said, making them appear official. The AGA is working with law enforcement regulators nationwide to push them to take action against such sites, Foreman said, and to advertise to consumers what’s legal and what’s not.
“A lot of the consumers who are betting on offshore or illegal sites don’t realize that they’re betting with unregulated operators,” Foreman said. “These operators spend a lot of time and are very clever about making their sites appear to be legal. If you do an internet search for them, they’ll pop up and say it’s legal and regulated somewhere.”
State, national impact
The gaming industry is generating at least a third of tax revenue in Nevada, Feldman said.
The state uses that money for education, for roads, for hospitals and for public services.
“Numbers that large basically filter to almost every aspect of our community,” he said. “Anytime, as we’re feeling right now, there’s downward pressure on the industry … there’s also a whole lot of business that’s being lost to operators who are not engaged in legal gaming and not paying taxes.”
If illegal pathways can be blocked, he said, it would benefit any state that has legalized gaming, certainly online casinos. Ultimately, Feldman said, the industry would get stronger and healthier and be seen as it should be — one that operates with integrity, extensive oversight and regulations, and with a great responsibility to its customers.
There’s a lack of urgency on the topic in Washington, he said.
“Which is really unfortunate, because there are people — there are Americans — who are getting harmed,” Feldman said. “There are American businesses that are getting harmed. But, the moment you start talking about gambling, politicians tend to shy away from getting engaged with it.”
A game could be fixed against the consumer on an illegal online site, and the player would have no idea.
Feldman’s recommendation? Only play where it is legal.
That may cause some consumer frustration, he said, but he also believes it’s for the public’s own good to know they are dealing with a well-regulated company. If they’re in a state that doesn’t allow online casinos, he said, then their only choice is to go offshore.
“I don’t think that needs to be a choice anyone should be making right now,” Feldman said. “That means, if you live in a state that doesn’t have legalized online gaming, that either you’re going to have to make a trip to your nearest casino, or just do without. And again, I think in terms of the greater public good, I think that’s probably right.”
The AGA wants to raise awareness and highlight the scope of the illegal gaming problem to the public, regulators and law enforcement in the U.S., Foreman said.
Across state and party lines, there’s broad agreement that action needs to be taken about illegal gaming, he said. He pointed to a recent bipartisan letter sent by a coalition of 50 state attorneys general, including Nevada’s Aaron Ford, to U.S. Attorney General Pam Bondi, urging her and the U.S. Department of Justice to act against illegal gaming.
“I think what we hope is that pointing out the scope (and) scale of this problem will help focus more resources — coordinate action and public awareness to this issue — so that we can get cooperation at the federal level, even the international level, to crack down on some of these online operators,” Foreman said.