As legal sports betting continues to grow, is it pushing out the illegal operators?
As state after state legalized sports betting within its borders, the claim was often made that one benefit would be to cut down on illegal gambling. Much like the arguments around marijuana legalization, the premise was that it's better to regulate and tax something that’s going to happen anyway rather than have it be a funding source for criminal activities. But the actual outcome is far muddier than that.
Illegal gambling is hard to measure for obvious reasons. But the consensus, looking over several studies and surveys, is that while unlawful gambling has lost share to legal gambling, it is still growing. Legal gambling seems to have increased gambling overall, creating a bigger pie for both legal and illegal operators to share in.
Since the Supreme Court overturned the Federal ban on sports gambling in 2018, the legal betting volume (handle) has grown mightily and steadily.
Source: Legal Sports Report
At least some of this growth has been propelled by a huge marketing effort. While the advertising spend for gambling has dipped below the early goldrush years, over $1 billion was spent just on TV advertising in 2024. This number doesn’t include other channels (digital, print, radio) or their numerous sponsorships. This has led some observers to conclude that this has made gambling in general a more acceptable and popular activity, driving demand for all kinds of gambling, both legal and illegal. The trade group American Gaming Association (AGA) estimates that “Americans wagered an estimated $84 billion with illegal bookies and offshore sportsbooks in the past year.” Compared to a similar study they did in 2022, the illegal sportsbooks' share of the total U.S. sports betting market fell from 36 percent to 24 percent. But they still grew in absolute terms, and 46% of all sports bettors reported pacing at least some bets with illegal sources. It’s worth noting that the bulk of this illegal activity is not coming from bookies operating out of a tavern down the street, but from sophisticated offshore gambling sites that look and feel similar to legal sites. Why do people still use illegal gambling when legal options are readily available? It seems to be driven by several factors, including:
Confusion - The easy accessibility of illegal gambling, especially offshore, makes it appear the same as legal venues to many people.
Odds/Payouts - Because Illegal operators avoid the taxes and regulations of the legal market, they can offer better odds and bonuses.
More Choices - The lack of state regulations often allows illegal sites to offer a greater variety of markets and betting types.
So the public policy legal argument that gambling reduces illegal gambling doesn't hold up. But the increased legal share of the still-growing market does mean more of those gambling proceeds are finding their way into state tax coffers.