The American Gaming Association estimates nearly $511 billion is wagered illegally in the United States on an annual basis, with nearly two-thirds of that total coming from online casino gaming.
The AGA released its findings Wednesday, drawing the figures largely from a survey conducted of nearly 5,300 adults in the U.S. The survey examined gambling habits of survey respondents with both legal and illegal operators and their observations of “unregulated gaming machines.” The survey also took into account the size of the legal gaming market in the United States, including legal online casinos, as well as data points of gaming machine markets in certain states.
“Illegal and unregulated gambling is a scourge on our society, taking advantage of vulnerable consumers, skirting regulatory obligations, and robbing communities of critical tax revenue for infrastructure, education, and more,” said AGA President and CEO Bill Miller in a statement. “We have always known that the illegal and unregulated market is expansive, but this report illuminates just how pervasive it is.”
The report serves as a follow-up from Miller’s “State of the Industry” address at last month’s Global Gaming Expo in Las Vegas when he called illegal gambling the top threat to the industry. In June, a bipartisan group from Congress called upon the Department of Justice to increase scrutiny and prosecution of offshore sportsbooks.
The AGA estimates $337.9 billion was wagered illegally via online slots and table games such as blackjack; $109.2 billion on unregulated games at bars and taverns; and $63.8 billion in sports wagering through bookies and offshore sportsbooks. It estimated the lost operator revenue from all illegal wagering to be $44.2 billion, which translates to an estimated $13.3 billion in state tax revenues never realized.
“All stakeholders — policymakers, law enforcement, regulators, legal businesses — must work together to root out the illegal and unregulated gambling market,” Miller said. “This is the fight we’re in for the long haul to protect consumers, support communities, and defend the law-abiding members of our industry.”
Plenty of bettors still attracted to online casino gaming
🚨 RELEASE: Americans gamble an estimated $511B illegally each year, robbing state governments of $13.3B in tax revenue annually and costing the legal gaming industry $44.2B in annual revenue, according to new AGA research.
— American Gaming Association (@AmericanGaming) November 30, 2022
Online casino gaming has been tipped for massive expansion in recent years, but it has lagged behind sports wagering for actual growth across the United States. Only six states offer legal iGaming, with a heavy concentration in the northeast as Pennsylvania, New Jersey, Connecticut, and Delaware all regulate the activity.
Among the 4,982 respondents aged 21 and over, 30% played exclusively in illegal markets, while another 18% played in both legal and illegal markets. Respondents were asked about their frequency of play for casino games and whether they played in-person, online, or at “distributed locations,” which includes bars and taverns, gas stations, and fraternal halls.
The AGA calculated average spend per player by multiplying reported play frequency by the average slot and table spend in each channel. It then calculated the spend implied from the survey data by multiplying the average spend per player by the relevant sample’s propensity to gamble and the relevant 21 and over population.
The 12-month average and full-year 2022 revenue for all casinos in the U.S. was $79.6 billion. H2G Gambling Capital reported iCasino revenue at $4.6 billion for the 12-month period from September 2021 to August 2022, and $5 billion for the 2022 calendar year, and the AGA took the average of the two figures — $4.8 billion — for its adjustment.
The South region of the U.S. accounted for nearly half the estimated illegal iCasino handle at $150.8 billion, followed by the Midwest at $91.8 billion. The Midwest region had the highest per capita handle at $1,784, followed by the South at $1,589. The biggest amount of estimated illegal iCasino revenue also came from the South with $6 billion — nearly 45% of the overall $13.5 billion.
The gray gaming market still delivers plenty of green
The AGA estimates there are more than 580,000 unregulated machines nationwide. This includes “skill games” also referred to as “gray gaming” and located in bars, truck stops, and malls. It examined five states — Nebraska, Georgia, Virginia, Kentucky, and Pennsylvania — due to their robust data in investigating and tracking skill games.
Of the five states, Pennsylvania was estimated to have the largest concentration of machines at 67,000, while Georgia has nearly 40,000 “Coin Operated Amusement Machines,” which are licensed by the state lottery. Kentucky was estimated to have more than 12,000 machines, and Virginia and Nebraska nearly that amount between them.
Survey respondents were asked to indicate states in which they had both seen and played unregulated gaming machines. The AGA restricted observations by respondents who saw and played unregulated machines to their state of residence to avoid double-counting before calculating the propensity. Pennsylvania had the highest percentage in both categories at 67.2% and 46%, respectively.
The $109.2 billion average handle came about from a wide range, with Virginia being the low end at $37.2 billion and Pennsylvania on the upper range at $177.6 billion. A classification by regulation status did not show much variance as the model based on the regulated Nebraska and Georgia markets averaged $112 billion compared to the $107.3 billion in the unregulated markets of Kentucky, Virginia, and Pennsylvania.
The estimated revenue lost worked out to $26.9 billion, with the South region of the U.S. accounting for $12 billion of that total.
People still placing sports bets via offshore books
Americans wager an estimated $63.8B with illegal bookies and offshore sites, implying that illegal sportsbook operators are capturing nearly 40% of the U.S. sports betting market.
This comes at the cost of $700M in state taxes and $3.8B in legal gaming revenue. pic.twitter.com/89aHqNiMmH
— American Gaming Association (@AmericanGaming) November 30, 2022
Though legal sports wagering has expanded to 31 states — 22 of which offer online betting — there are still people placing illegal bets. More than one-third of the respondents — 34% — were placing bets both legally and illegally, while another 15% sought to place wagers exclusively in illegal markets.
The AGA asked respondents if they had bet on sports in the past calendar year, and for those who wagered online in that span, to select from 20 prominent sites or write in ones not listed. Of the 4,982 respondents, 21.1% had a propensity for sports wagering, with 9.5% of them having the propensity to place illegal bets.
The estimated $63.8 billion handle going to offshore books implies the illegal market is generating approximately 40% of all American sports wagering handle based on the average of H2G Gambling Capital’s estimates of $85.5 billion handle in the 12-month period from September 2022-August 2021 and a $96 billion handle for the 2022 calendar year. The latter could be considered an absolute upper range considering there is a known amount of $70 billion wagered thus far this year.
The estimated $3.8 billion in lost revenue was based on a reduced average hold of 6% — well below the current 2022 year-to-date hold of 7.8%.