Protecting the Legal Gaming Ecosystem – One Illegal Market at a Time

Summary and key takeaways

The legal gaming market in the US contributes US$ billions in tax, offers a safe and entertaining product and employs thousands of Americans. But, it is under threat from illegal and unregulated operators. This article explores why and how US law makers and regulators must protect legal gambling from the black market and prediction markets including:

What legal gambling contributes to the entertainment mix in the US in dollar terms
How illegal and unregulated operators have been allowed to grow
The role of legal gambling to the economic welfare of native American tribes
The risks to consumers of the black market
The explosion of prediction markets and why they should be regulated by states
Coordinating efforts to tackle the black market and protect the legal market

Today’s legal gaming market

The US gaming industry is a longstanding economic engine contributing US$328 billion¹ annually to the national economy. What began in Nevada has expanded to 47 states, collectively generating more than US$52 billion in annual tax revenue. These revenues are reinvested in communities to fund critical public services.

Today, legal gaming – including traditional, online casino gaming (iGaming), and sports betting – is widely viewed as mainstream entertainment, with nearly nine in ten Americans (88 percent)² saying casino gambling is acceptable for themselves or others. This level of public acceptance has remained steady for more than a decade. That trust is not accidental. It is the product of responsible growth, robust consumer protections, regulatory oversight, and gaming taxes that ensure revenues benefit local communities.

Yet despite this expansion, illegal and unregulated operators remain one of the most significant threats to the industry. It is not a peripheral concern. It is a parallel market actively undermining public policy and regulatory systems.

Illegal gambling: a top industry and regulatory priority

Illegal gambling is not confined to a single vertical. It spans land-based, iGaming, unregulated machines, and sports betting, including offerings that attempt to rebrand wagering activity as something else entirely. While these models differ in form, they share a common feature: they operate outside the established regulatory frameworks designed to protect consumers and uphold state policy choices.

Illegal operators provide none of the safeguards required of licensed operators³. Consumers are exposed to platforms with no responsible gaming protections, weak or nonexistent data security, and heightened risks of financial crime and money laundering. At the same time, these operators deprive states and local communities of critical tax revenue.

Illegal gambling also undermines state and tribal sovereignty by bypassing the regulatory frameworks lawmakers have deliberately established. Protecting the integrity of regulated gaming requires confronting illegal activity as a top enforcement and policy priority.

The scope of the illegal gaming market in the US

According to AGA research, Americans wager an estimated US$673.6 billion annually⁴ with illegal and unregulated gambling operators – an amount equal to roughly one-third of the entire legal US gaming market. This massive diversion of activity carries significant consequences. States collectively lose an estimated US$15.3 billion each year in tax revenue, funds that would otherwise support education, infrastructure, public safety, and other essential services.

Since 2022, illegal and unregulated gambling activity has grown by 22 percent. While market legalization has clearly shifted consumers toward regulated platforms, this parallel growth underscores a central challenge for regulators and lawmakers: legal market growth alone does not eliminate illegal activity without sustained enforcement and clear regulatory boundaries.

Prediction markets offering sports event contracts

One of the most significant threats to the legal gaming industry is the rise of prediction market platforms offering sports event contracts. Today, 39 states and Washington, D.C. permit sports betting because voters and elected leaders chose that framework. In the states where sports betting remains illegal, that decision was equally deliberate.

Prediction market platforms are bypassing these choices by offering unregulated nationwide sports betting under the guise of “event contracts,” avoiding compliance with state and tribal gaming laws.

These platforms assert federal oversight by the Commodity Futures Trading Commission (CFTC), an agency established to regulate commodities and derivatives markets – such as agricultural futures created for farmers to hedge against economic volatility or natural disasters. The CFTC was not designed to regulate sports wagering, and regulatory gaps should not be exploited to override local authority.

For years, Section 5c(c)(5)(C) of The Commodity Exchange Act⁵ clearly identified event contracts involving “gaming” as contrary to the public interest. Nonetheless, prediction market platforms have continued to expand self-certified sports-related offerings, relying on agency inaction to justify their operations.

Gaming policy has consistently preserved regulation as a state and tribal responsibility. The Indian Gaming Regulatory Act (IGRA)⁶ affirms tribal authority, the repeal of PASPA⁷ restored states’ rights, and the Wire Act and Dodd-Frank Act were never intended to authorize a nationwide gambling market.⁸

Multiple states and tribes across several federal jurisdictions are engaged in litigation, challenging prediction market platforms. During prolonged regulatory uncertainty, consumers face increased risk of data exposure, lack of responsible gaming resources and financial safeguards, and heightened exposure to underage gambling.

Offshore online gaming

Another complex form of illegal gaming involves offshore operators claiming legitimacy based on foreign licensing. These platforms actively target and accept wagers from US consumers, advertise in states that have not legalized sports betting or iGaming, and operate outside state and tribal regulatory frameworks.

Illegal iGaming represents the largest segment of the illegal gaming market, generating an estimated US$18.6 billion annually⁴, up nearly 38 percent since 2022. This growth is particularly concerning given that regulated iGaming is authorized in only eight states.

Offshore sportsbooks follow a similar pattern, frequently targeting US consumers, including minors. Prior to PASPA’s repeal, sports betting largely existed in the shadows, dominated by illegal bookies and offshore websites. Since 2018, the share of bettors using only illegal sites has declined – proving that consumers are shifting to the legal market. However, one in ten American sports bettors still wager through illegal sources with an estimated US$84 billion handle⁴.

These platforms lack basic identity verification and responsible gaming safeguards. They pose heightened risks of money laundering, fraud, and identity theft and are not subject to anti-money laundering (AML) or know-your-customer (KYC) requirements.

Federal and state officials have increasingly prioritized this threat. Over the past year, both the Senate Judiciary Committee⁹ and a bipartisan coalition of 50 state attorneys general¹⁰ urged the Department of Justice to prioritize enforcement. State regulators have also taken action. Following regulatory actions, offshore operator Bovada withdrew from 17 states and the District of Columbia, demonstrating that targeted regulatory pressure can curb illegal activity.

Sweepstakes casinos

Some online platforms market themselves under a sweepstakes model while clearly offering casino-style games. These operators award virtual currency or gold coins redeemable for real money, creating an experience that mirrors real-money regulated iGaming – despite claiming they are not offering gambling.

This model exploits legal ambiguity and creates consumer confusion. AGA research shows that 90 percent of users consider sweepstakes casinos to be gambling, and 69 percent describe them as places to wager real money.

Addressing this issue requires lawmakers, regulators, and law enforcement to clarify definitions and close loopholes. More than 20 states have issued cease-and-desist orders, and several states have enacted new legislation¹¹ to prohibit or clarify illegality. California, Montana, Connecticut, and New Jersey have passed laws prohibiting and restricting these operations.

States with sweepstakes bans have roughly half as many players¹², demonstrating how regulation and enforcement weed out exploitation and protect consumers. The AGA encourages other states to follow their lead.

Unregulated “skill games” and illegal machines

One of the largest physical forms of illegal gaming is the proliferation of so-called “skill games.” These machines resemble traditional slot machines and are commonly found in bars, restaurants, and convenience stores, without gaming licenses.

Legally, gambling is defined by three elements: consideration, chance, and prize¹³. Skill game operators claim outcomes are determined by player skill rather than chance. Courts and regulators increasingly reject this claim, finding that outcomes are predominantly chance based.

The scale of this market underscores the regulatory challenge. An estimated 625,316 unregulated machines currently operate nationwide, representing a 7.7 percent increase since 2022. These devices generate approximately US$30.3 billion annually, while states lose an estimated USs$9.5 billion each year in foregone tax revenue.⁴

Consumer risks are significant. Unregulated machines retain roughly 25 cents per dollar wagered, compared with an average of 7.2 cents for regulated slot machines in Nevada. Separately, these devices offer no assurance of fair play and create substantial liability risks for small businesses.

Law enforcement has linked illegal machines to money laundering, drug trafficking, and other criminal activity, with regulators having no visibility into ownership, payouts, or financial flows. States have responded through seizures, cease-and-desist orders, litigation, and legislation targeting both machine operators and location owners.

The importance of State- and Tribal-regulated gaming

State and tribal governments have long held authority to determine whether gaming should be legalized and, if so, how it’s regulated. This framework enables jurisdictions to shape policies and to reflect individual values and needs. For tribal nations, gaming has been foundational to economic development, self-sufficiency, and essential public services.

Illegal and unregulated gambling operators bypass these policy choices entirely. By operating outside the law, they undermine state and tribal sovereignty and expose consumers to significant risk.

Protecting state- and tribal-regulated gaming is not simply a matter of industry interest. It is essential to preserving integrity, respecting sovereignty, and ensuring public trust.

Combating the illegal market: a coordinated enforcement framework

The scale and persistence of illegal gambling demands a coordinated response across law enforcement, regulators, and policymakers alike. Legal market expansion alone does not displace illegal activity. Enforcement reinforces standards and ensures regulatory evasion carries real consequences.

A September 2025 GeoComply study¹⁴ found states taking action against illegal operators experienced 10 percent higher year-over-year growth in active players and 39 percent higher growth in new accounts compared with non-enforcement states. When illegal operators are curtailed, consumers shift to licensed, regulated alternatives.

Gaming regulators and state attorneys general must consistently investigate and act against unlawful operators. The high bar to obtain and maintain a gaming license is intentional; enforcement preserves that standard, protects consumers, and ensures lawful operators are not undercut.

Conclusion: protecting the legal market

Illegal gambling is a solvable policy and enforcement challenge. Success requires vigilant enforcement, clear and modernized statutes, and sustained cooperation among law enforcement, regulators, policymakers, and industry stakeholders.

Safeguarding regulated gaming protects consumers, maintains regulatory integrity, and honors the policy choices of states and tribal governments.

Bill Miller is President and CEO of the American Gaming Association

More articles on the black market and illegal gambling

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American Gaming Association, National Economic Impact of the U.S. Gaming Industry (2023), https://www.americangaming.org/resources/national-economic-impact-of-the-u-s-gaming-industry-2023/
American Gaming Association, American Attitudes Toward Gaming, https://www.americangaming.org/resources/american-attitudes-towards-gaming/
See for example, American Gaming Association, Responsible Gaming Regulations and Guidelines, https://www.americangaming.org/resources/responsible-gaming-regulations-and-statutes-guide/
American Gaming Association, Sizing the Illegal and Unregulated Gaming Markets in the United States, https://www.americangaming.org/resources/sizing-the-illegal-and-unregulated-gaming-markets/
Commodity Exchange Act, 7 U.S.C. https://www.govinfo.gov/content/pkg/COMPS-10309/pdf/COMPS-10309.pdf
Indian Gaming Regulatory Act, Pub. L. No. 100-497, 102 Stat. 2467 (1988)
Murphy v National Collegiate Athletic Association, 584 U.S. (2018)
Wire Act, 18 U.S.C.; Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 (2010)
Letter from U.S. Senate Committee on the Judiciary regarding youth sports betting (2025),https://www.britt.senate.gov/wp-content/uploads/2025/10/FINAL-Youth-Sports-Betting-Letter1-1.pdf
National Association of Attorneys General, Letter on Illegal Offshore Gambling (2025), https://www.naag.org/wp-content/uploads/2025/08/Multistate_Illegal-Offshore-Gambling_FINAL-corrected-003.pdf
See for example, California Gambling Control Act, A.B. 831
American Gaming Association, Sweepstakes Casino Player Profile & Advertising Trends, slide 7 (July 2025), https://americangaming.org/wp-content/uploads/2025/07/AGA-Sweepstakes-Casino-Players.pdf
See Nelson Rose, “Gambling and the Law: The Three Elements of Gambling,” Gaming Law Review (1986)

GeoComply, Crackdowns Pay Off: Enforcement Drives Players to Legal Sportsbooks (September 2025), https://www.geocomply.com/news/crackdowns-pay-off-enforcement-drives-players-to-legal-sportsbooks-geocomply-data-shows/