Tribal Panel: Negative Experiences In Illegal Market Bleed Into Legal Market

TEMECULA, Calif. — What effect does the illegal or non-state-regulated gambling market have on the legal market? Attorney Jim Stipe found the answer in his living room.

“My wife and I were watching a hockey game that went to a shootout and one of the guys who went from my team, well, it was a lame shot,” Stipe said. “And my wife’s reaction was, ‘oh, he probably bought a few contracts on that.’ That’s what’s happening — there is a loss of integrity.”

That loss of integrity isn’t just affecting sportsbooks. On a panel titled “The Economic Effects of Illegal Gaming” at the Western Indian Gaming Conference Thursday, panelists pointed to a lack of trust from consumers, as well as the loss of revenue for states and tribes.

Moderator Matt Klas of Klas Robinson, which provides market research and economic-impact analysis services to gambling and other industries, led a discussion with tribal gaming attorneys Stipe of Burch & Cracchiolo, Scott Crowell of Crowell Law Office, and Stephen Hart of Womble Bond Dickinson.

AGA data shows $54 billion illegal market

Citing research from the American Gaming Association (AGA), Klas shared that illegal gaming revenue was estimated at nearly $54 billion in 2024, representing a tax revenue loss of $15.3 billion to U.S. jurisdictions. The AGA, in this case, defined illegal gaming as offshore or black-market gaming, and it does not include projections for losses to unregulated sweepstakes platforms or prediction markets.

The AGA breaks down the loss from offshore gambling this way: $30.3 million in revenue for unregulated machines, $18.6 million for online slots and table games, and $5 million for offshore and corner bookies.

The numbers mean that the illegal market is about half as big as the legal market and, Crowell said, the numbers are behind why Maine lawmakers legalized online casino earlier this year. Maine became the eighth state to make online casino legal, compared to more than 30 for online sports betting.

“In Maine, one of the reasons to legalize online gaming is that people in Maine didn’t have a legal option to go to,” Crowell said. “It is similar to the problem in California. There is nowhere to go.”

The panelists said they believe that consumers prefer to play in a legal market, but it is increasingly difficult for them to discern which platforms are legal and which are not. In fact, Klas said, pollsters sometimes don’t indicate which gambling platforms are and are not legal when they poll. Rather, a consumer might see a list that includes BetMGM, High 5 Casino, Lucky Legends, and theScore Bet, from which they are to check off the platforms they use.

A researcher would then go back and separate out which platforms are legal. Klas said this confusion is one reason why the illegal market won’t disappear.

“I feel that you will see [illegal play] go down, but it will still exist,” he said.

How black market costs legal market

Klas explained that there are three key ways the illegal market cuts into customer base and revenue for the legal market.

• Direct revenue diversion: This is when a consumer plays at an illegal or unregulated machine or platform. This could be an unregulated machine at a bar or truck stop or on an unregulated online casino or sports betting platform.
• Wallet share reduction: This is when a consumer plays on both the legal and illegal markets, but plays less on the legal market and is spending some dollars on an illegal game.
• Similarity drives impact: This is when illegal, unregulated, or machines not at casinos so closely mirror legal games that the consumer can’t tell the difference. The more similar the products look, the bigger the effect. For example, he said, while regulated in some states, VLTs at convenience stores or bars divert players from casinos and can have an outsized effect compared to pull-tabs, which are legal charity gaming in Minnesota and have a lesser effect.

The differences between the legal and illegal markets are clear, Klas said — legal gaming brings revenue into a state, creates jobs, requires consumer protections, and funnels tax dollars to a state. The illegal market does not.

A key issue with illegal games is how they reflect on the market as a whole, Klas said. For example, the black market lacks consumer protections, there may be a higher incidence of underage gaming or “irresponsible” gaming, and “the public may associate those negative outcomes with gaming in general, leading to boarder public pushback against legal gaming.” In real-world terms, that sentiment can translate into fewer visits to a casino, lawmakers balking at legalization, or regulators adding additional compliance measures.

What can the legal market do?

Stipe put a finer point the problems created for the legal market. What consumers “don’t know is that they are also getting ripped off, and then that bleeds into all other platforms, so everything is then considered bad.”

Stipe’s company works with the Arizona Department of Gaming (ADG), which has been aggressive in trying to ban illegal and unregulated operators. The agency has sent out cease-and-desist letters to offshore operators and sweepstakes platforms, and has warned its licensees about offering or partnering with entities that offer prediction markets.

But states can leverage other avenues to stop illegal gaming, including reviewing its criminal statutes. Crowell said in Arizona and Washington state, it’s illegal for a consumer to use unregulated sites. The issue, however, is how to enforce those laws.

“So what’s in the tool chest?” Crowell asked. “Taking consumers and throwing them in jail or fining them, that action isn’t going to be extremely popular.”

He said that in Washington state, he doesn’t believe that anyone using an illegal platform has ever been prosecuted, not to mention the manpower that would be needed to identify such consumers. But if a person is actively seeking out offshore markets, maybe “making an example of them is another thing to put in the tool chest.”

The panel agreed, however, that seizing phones and other devices may not be the best approach, and suggested that penalizing those who provide access to illegal platforms, like Google Play or the Apple Store, is another tactic.

Apple, Google, and Meta are currently defendants in federal court cases in which plaintiffs argue that by having apps for illegal platforms available and making money from them, the companies are promoting illegal gambling.