While the expansion of regulated gambling in recent years has eroded some of the market share of illegal operators, particularly in sports betting and online gambling, unregulated gambling still accounts for 31.9% of the total U.S. gambling market. The study, conducted by Innovation Group for the American Gaming Association (AGA), shows that this underground gambling industry has expanded by 22% since 2022, driven by the rise of illegal online gambling, the proliferation of unregulated "skill" games, and the continued existence of illegal sports betting.

Bill Miller, president and CEO of the American Gaming Association, emphasized the urgency of the issue. "Illegal gambling operators are thriving at the expense of American consumers, siphoning billions of tax dollars from state governments and undermining legal market efforts," Miller said. "It's time to crack down on this rampant illegal market nationwide that is draining state funds and putting people at risk."

Unregulated machines cause severe losses

One of the report's most pressing concerns is the rapid proliferation of unregulated "skill" machines. There are now more than 625,000 of these devices in use in bars, restaurants, and convenience stores across the United States, a 7.7% increase since 2022. Last year alone, these machines generated an estimated $30.3 billion in revenue and cost states $9.5 billion in lost tax revenue.

The lack of regulation surrounding the operation of these machines raises serious concerns for consumer rights and community safety. The report states that they are now one of the fastest-growing threats to the regulated gambling industry, outpacing many other forms of illegal gambling.

Illegal iGaming activities are increasing rapidly

Illegal online gaming (iGaming) has also seen significant growth, with unauthorized online slots and table games generating $18.6 billion in annual revenue, a nearly 38% increase since 2022. Worryingly, the percentage of players who gamble exclusively on legal platforms has dropped from 52% in 2022 to 24% today. Meanwhile, players who play on both legal and illegal platforms now account for 49% of iGaming players, nearly triple the percentage from three years ago.

Despite this, the American Gaming Association noted that illegal operators’ share of the US iGaming market has shrunk since 2022, suggesting that legalization and enforcement efforts have had some success. However, the industry still leads all other forms of illegal gambling in terms of wagering volume, with an estimated $466.2 billion wagered annually.

Illegal share of sports betting declines

The situation is slightly more optimistic for sports betting. Last year, Americans wagered about $84 billion on illegal bookmakers and offshore sportsbooks , generating $5 billion in revenue for these unregulated operators and costing states about $1 billion in lost tax revenue.

The proportion of sports bettors who use only illegal channels has fallen by a third since 2022, and the illegal betting market share has also fallen from 36% to 24%. However, one in ten sports bettors still only place bets with unauthorized service providers, highlighting the challenges of completely eradicating the black market.

Miller emphasized the need for proactive and coordinated law enforcement. "These bad actors operate in secret, without any consumer protections, no responsible gaming obligations, and no financial rewards for the communities they exploit," he said. "Fighting them requires not only increased U.S. law enforcement but also continued close collaboration with our international partners to shut down offshore operators and hold them accountable."

The American Gaming Association's analysis highlights both the persistence of the illegal gambling market and the progress made in reducing its dominance in certain areas. However, given the billions of dollars in lost tax revenue and harmed consumer rights, the report calls for a sustained, multifaceted effort to curb the problem.