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New AGA-Financed Report Says Illegal Gambling Costs Tax Payers $13 Billion

The American Gaming Association furthered its campaign to stem various types of illegal gambling activity — including online sports betting — that cannibalizes revenues of the industry the AGA represents, and also cheats state and local governments of gaming tax revenues, with a report that attempts to quantify how much money is involved.

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The AGA-financed report, released Nov. 30, contends that illegal gambling — including offshore sports bookmaking, offshore iGaming websites and domestically-located “skill games” that resemble slot machines — cost the gaming industry collectively more than $44 billion in revenue and cost state governments nearly $13.4 billion in tax collections.

However, perhaps the most significant dollar-sign metric in the report was in a specific breakdown of the numbers. Of the nearly $511 billion in overall handle that Americans wager in various illegal-market gambling activities, almost $338 billion (or about 66%) is in offshore iGaming play.

Those bootleg digital slots and table games also account for an estimated $13.5 billion in revenue lost to the regulated gaming market and almost $4 billion in taxes that state governments are missing out on. Also, the $13.5 billion in revenue lost to legal gambling companies in iGaming play happens to be more than five times the amount of revenue than even the offshore sportsbooks take in.

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Very Few States Have Legal iGaming

Part of the explanation for the illicit slots/table games outsized handle and hold compared to sports gambling is found in some other numbers mentioned in the report.

In the United States, there is legal sports betting — from major brands such as BetMGM Sportsbook — in 36 states and Washington D.C., with the majority of those jurisdictions having mobile sports betting.

In contrast, just six states (New Jersey, Pennsylvania, Michigan, Connecticut, West Virginia and Delaware) have online casino gambling, also known as iGaming.

The conclusion is inescapable: Given an alternative to bet with legal and regulated online sports betting operators, the public takes its betting action to what it perceives to be a safer gambling environment. However, without that choice available in most of the U.S. for internet casino gambling, the public uses what’s available to it — the offshore iGaming casinos.

The American Gambling Industry, writ large, has been persistently nudging the U.S. Department of Justice to take action regarding offshore internet gambling activity for a few years with the nudging getting more insistent recently. Congressional representatives from gambling states have joined in appealing to the DOJ. But how soon, or even whether, the DOJ takes action is anyone’s guess.

At the local law enforcement level resides the responsibility for dealing with what the AGA contends are more than 580,000 unregulated gambling machines in local taverns, private clubs and other small businesses (the AGA says there are 870,000 regulated gambling machines in the country). Those widely scattered unregulated machines all over the U.S., account for about $109 billion in handle and more than $27 billion in revenue, according to the AGA-sponsored report.

Going after such machines is problematic in that they’re spread throughout hundreds or even thousands of locations and because their legitimacy is often pressed through lobbying and legal efforts. And while the AGA might complain about the so-called skill games, combating them is several steps removed from the AGA’s core influence.

There is the argument the skill games are literally a bad bet. The AGA contends that “during the past 12 months, slot machines in Nevada have a 7.16% win-rate, compared to a nearly 25% estimated win-rate for unregulated machines.” However, those unregulated games are just down the road in a neighborhood bar or truck stop, not in Nevada, and convenience is a factor.

So, that leaves the illicit online iGaming industry as the most vulnerable, cash-rich target that the regulated gambling industry can take on. And if the DOJ doesn’t do it for the industry and the public, the industry can try to take matters into its own hands by convincing state legislators and electorates (if need be) that the public is better off with a regulated iGaming industry than an unregulated one.

While problem gambling will always be a concern with increased access to gaming, the truth is illegal iGaming websites do little if anything to promote responsible gambling while a legal iGaming industry can be required to contribute financially to responsible gaming efforts and employ mitigating measures.

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Lobbying at National, State Levels

However, the lobbying on legalized iGaming won’t be easy.  As one proponent of legal iGaming put it, “When legislators are urged to adopt sports gambling, what they hear mostly is ‘sports.’ When they hear about iGaming, what they hear mostly is just ‘gambling.’”

The best chance for more widespread iGaming is that some significant jurisdiction outside of the current six — again, New Jersey, Pennsylvania, Michigan, Connecticut, West Virginia and Delaware — adopts iGaming. The most prominent jurisdiction mentioned lately is New York, although some Midwest states also have discussed the possibility with proposed iGaming legislation floating around some statehouses. Should more iGaming legalization happen, a domino effect could bring more states onboard.

In the meantime, the AGA will keep churning out reports and rolling out dollar-sign numbers followed by the word “billions” to highlight the money being lost to legitimate tax-paying companies and that is also escaping state governments to fund public-interest projects and support important societal efforts, such as education.

Link to report: https://www.americangaming.org/resources/sizing-the-illegal-and-unregulated-gaming-markets-in-the-u-s/

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