Backroom Brawl

Illegal gaming has been around forever and the growth of legal gaming has forced it back into the shadows. But it hasn’t gone away, as proven by a recent reports issued by the American Gaming Association and The Innovation Group.

Backroom Brawl

From corner bookies to backroom gambling halls, illegal gambling is nothing new in America. The federal ban on sports betting from in 1992 to 2018 only grew this black market, as has the proliferation of unlicensed, unregulated gaming machines in recent years.

Now, we know just how pervasive a problem illegal gambling is. New research from the American Gaming Association (AGA) shows that Americans gamble an estimated $511 billion illegally each year. This costs states $13.3 billion in tax revenue annually. It also costs the legal gaming industry $44.2 billion in annual revenue, or nearly half of the $92 billion in combined commercial and tribal revenue in 2021.

If you didn’t know any better—and many consumers don’t—these gambling operations would appear legal. However, when betting with an illegal operator, a customer has no legal recourse if they are not paid out, nor will they find any responsible gaming resources if they are at risk of problem gambling. Operators of illegal sportsbooks, online casinos and unregulated machines also don’t pay a dime in taxes.

This is a far cry from the legal gaming industry, which invests millions of dollars in responsible gaming tools and research and in 2021 contributed $11.7 billion in taxes to state and local governments.

Why, then, do we continue to allow illegal gambling operators to continue to thrive when policymakers and law enforcement have the power to crack down on these bad actors?

While offshore operators exist outside of U.S. law, the Department of Justice has the tools to make business more difficult for them. It can make indictments to spotlight these sites as illegal, block web domains and payments to offshore operators, and launch investigations into capital holdings offshore operators may have within the department’s jurisdiction.

Federal policymakers can also act against offshore operators by eliminating the federal sports betting excise tax—originally enacted to catch mob-run gambling operations for tax evasion—which takes a cut off the top of every bet placed with a legal U.S. sportsbook. The tax drives up betting prices in the legal market, punishing regulated operators and giving an advantage to operators that skirt the law.

Thankfully, there is progress being made in federal efforts to crack down on the illegal market, including by the FBI, which is increasing scrutiny on offshore operators and working to educate the public on the dangers of betting with these sites.

On a local level, we’re seeing strides made in states like Michigan, South Carolina and more to investigate and prosecute operators of illegal gambling machines. States like Virginia are enacting laws to formally ban these “gray” market machines, and the AGA is hopeful more states will follow this example.

But much more can be done on these fronts.

From elected representatives and law enforcement to the legal gaming industry itself, we all have a vested interest in protecting consumers and our communities by eradicating illegal gambling. Together, we can provide Americans with a safer gaming market and recoup billions in critical tax revenue, and the AGA is committed to leading this fight in the coming year and beyond.

Let’s go all in—and make illegal operators fold

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Articles by Author: Alex Costello

Alex Costello is vice president, government Relations for the American Gaming Association.