America’s Illegal Gambling Industry Nears $700 Billion

Americans are gambling an astonishing amount of money every year, and a huge portion of it is happening outside the legal, regulated gaming industry. According to a 2025 analysis from the American Gaming Association, Americans wager an estimated $673.6 billion annually with illegal and unregulated gambling operators.

The scale is enormous, and the illegal and unregulated gambling market has grown 22% since the AGA’s previous analysis in 2022.

The underground gambling economy generates an estimated $53.9 billion in annual revenue. At the same time, the AGA estimates that state governments lose approximately $15.3 billion in tax revenue because that gambling activity is taking place outside the regulated market.

Walk into some convenience stores, bars or other businesses and there may be an unregulated gambling machine sitting somewhere inside. The AGA estimates that more than 625,000 unregulated “skill” machines are operating across the country, an increase of 7.7% since 2022. Those machines alone generate an estimated $30.3 billion in annual revenue.

The AGA estimates that illegal online casino gambling generates approximately $18.6 billion in annual revenue, with that portion of the illegal market growing by nearly 38% since 2022. Illegal sports betting represents another massive piece of the underground economy, with an estimated $84 billion in annual wagers and approximately $5 billion in revenue for illegal operators.

The problem with an illegal gambling operation is not simply that the government does not collect a tax on the transaction. There are also few of the protections that come with a licensed and regulated gambling operation.

A legal operator can be subject to age restrictions, responsible-gambling requirements, regulatory oversight and rules governing how customer disputes are handled. An offshore sportsbook or illegal gambling operation does not necessarily provide those same safeguards, leaving customers with considerably less recourse when something goes wrong.

Federal law enforcement has also warned that illegal gambling can become intertwined with criminal activity. The FBI says people who participate in illegal gambling can expose themselves to fraud, extortion and violence, while illegal gambling operations can generate money for organized crime and other criminal activity.

That makes the size of the underground market more than an accounting problem. When hundreds of billions of dollars move through businesses operating outside the regulatory system, there is also a question of who controls that money and what protections exist for the people putting it at risk.

Companies such as Kalshi and Polymarket have emerged as major players in prediction markets, including contracts tied to sporting events. The companies have argued that these contracts are financial products regulated under federal commodities law rather than traditional sports bets subject to state gambling regulations. The AGA strongly disputes that characterization and argues that sports-related prediction contracts function as a form of sports betting outside the state and tribal regulatory system, but it does serve as a gateway into gambling for many Americans. This contributes heavily to the growth of the underground gambling industry.

The AGA said this month that prediction markets such as Kalshi and Polymarket have siphoned more than $1.3 billion in potential state gaming tax revenue since 2025. The organization also argues that prediction markets are effectively creating a national sports-betting market in jurisdictions where traditional sports betting remains illegal or tightly regulated.

There is an important distinction here. The AGA’s 22% growth figure does not show that Kalshi or Polymarket caused the illegal gambling market to grow by 22% since 2022. That calculation was based on the AGA’s 2025 analysis of illegal sports betting, illegal online casino gambling and unregulated machines, while the current fight over sports prediction markets is a more recent development.

What the numbers do show is that Americans have a massive appetite for gambling, and the legal market has not captured all of it.

That creates an unusual situation. States have spent years building regulated gambling markets around licensing, taxation, age restrictions and consumer protections, while hundreds of billions of dollars continue to flow through offshore sportsbooks, illegal online casinos and unregulated machines. At the same time, new financial platforms are challenging the definition of what constitutes a sports bet and which regulators should have authority over it.

The result is a gambling industry that is becoming harder to divide neatly into “legal” and “illegal.” Some operations clearly fall outside the law, while others are operating in disputed territory and arguing that existing gambling regulations do not apply to them.

For consumers, that distinction matters. For states, it means billions of dollars in potential tax revenue are at stake, while law enforcement agencies remain concerned about the criminal activity that can surround illegal gambling.