Americans are wagering hundreds of billions of dollars each year with unregulated gambling operators, according to a new analysis from the American Gaming Association (AGA). The report estimates that $673.6 billion annually is spent through illegal channels, diverting significant economic activity from licensed operators and depriving states of critical tax revenue.
While the expansion of regulated gaming has trimmed some market share from illegal operators in recent years—particularly in sports betting and iGaming—unregulated gambling still represents 31.9% of the total U.S. gaming market. The study, conducted by The Innovation Group for the AGA, reveals that this underground sector has expanded by 22% since 2022, fueled by rising illegal online play, a surge in unregulated “skill” machines, and persistent illicit sports betting activity.
AGA President and CEO Bill Miller stressed the urgency of the issue. “Illegal gambling operators are thriving at the expense of American consumers, siphoning billions in tax revenue from state governments, and undercutting the efforts of the legal market,” Miller said. “It’s time for a national crackdown on the pervasive illegal market that is draining state coffers and putting people at risk.”
Unregulated Machines Drive Heavy Losses
One of the most pressing concerns in the report is the rapid proliferation of unregulated “skill” machines. More than 625,000 such devices are now in use across U.S. bars, restaurants, and convenience stores—a 7.7% increase since 2022. These machines generated an estimated $30.3 billion in revenue last year alone, costing states $9.5 billion in lost tax collections.
Because they operate without oversight, these machines raise serious consumer protection and community safety concerns. The report notes they are now one of the fastest-growing threats to the regulated gambling industry, outpacing many other forms of illegal play.
iGaming Sees Sharp Illegal Growth
Illegal iGaming has also surged, with unauthorized online slots and table games producing $18.6 billion in annual revenue—a jump of nearly 38% since 2022. Alarmingly, the portion of players who gamble exclusively on legal platforms has dropped from 52% in 2022 to just 24% today. Meanwhile, those who split their play between legal and illegal sites now account for 49% of iGamers, almost triple the figure from three years ago.
Despite this, the AGA notes that illegal operators control a smaller share of the U.S. iGaming market than in 2022, suggesting some success from legalization and enforcement efforts. However, the sector still leads all other forms of illegal gambling in terms of handle, with an estimated $466.2 billion wagered annually.
Sports Betting Sees Declining Illegal Share
Sports betting presents a somewhat more optimistic picture. Americans placed around $84 billion in bets with illegal bookmakers and offshore sportsbooks last year, generating $5 billion in revenue for these unregulated operators and costing states roughly $1 billion in tax revenue.
The proportion of sports bettors using only illegal outlets has fallen by one-third since 2022, and the illegal share of the market has dropped from 36% to 24%. Still, one in ten sports bettors exclusively wagers with unauthorized providers, underscoring the challenge of eradicating the black market entirely.
Miller underscored the need for aggressive and coordinated enforcement. “These bad actors operate in the shadows with zero consumer protections, no responsible gaming obligations, and no economic return to the communities they exploit,” he said. “Combating them requires not only stronger U.S. enforcement, but also continuing to work closely with our international partners to shut down offshore operators and hold them accountable.”
The AGA’s analysis highlights both the persistence of the illegal gambling market and the progress achieved in reducing its dominance in certain segments. Still, with billions in lost taxes and consumer protections at stake, the report calls for sustained, multi-front efforts to curb the problem.
