This year’s March Madness basketball tournament was a breakout event for the legal online sports betting industry, attracting $2.4 billion in wagers, according to new data from gambling market intelligence firm Yield Sec. Ever since the Supreme Court legalized sports gambling in 2018, sportsbooks such as DraftKings and Caesars have raced into the $120 billion domestic market.
But illegal bets still dwarf gambling on licensed platforms. Yield Sec’s study shows that almost twice as much money—$4.3 billion—was wagered on the March Madness tournament illegally.
“If you can control this and run this business correctly, substantial good can flow from it. The problem is when it’s not run correctly, and [we’ve seen] how badly things can go, then there’s irresponsible gaming,” Yield Sec CEO Ismail Vali told Fortune.
Legal sports betting generated around $2 billion in tax revenue nationwide last year, per Census data. But when consumers place bets illegally, states miss out on tax revenue they would have earned from bets placed through licensed operators.
Online advertising makes it easier for illegal operators to target consumers, who find it difficult to tell which sites are licensed and which aren’t, Vali said. Yield Sec found that around three-quarters of the March Madness betting ads it surveyed were for illegal sportsbooks.
Sports gambling is regulated at the state level in the U.S., which has created a fractured regulatory ecosystem. Currently, sports betting is legal in 38 states and Washington, D.C., and four more states are currently weighing ballot initiatives to join them. Sportsbook operators have to obtain licenses to do business at the state level, which has created confusion when consumers place bets in sportsbooks that are licensed in states or countries other than the one in which they reside—bets that are technically illegal.
“The lack of a united government approach and lax oversight by states have only compounded the problem, enabling entities with dubious backgrounds to operate freely. It’s high time for U.S. leadership to spearhead a unified solution to this pervasive issue,” wrote Derek Webb, founder of the Campaign for Fairer Gambling, in a press release.
Since 2018, tides within the industry have tended toward increasing the size of the gambling market—but recently, high-profile officials have urged restrictions. Last month, NCAA President Charlie Baker called for a ban on in-game prop betting on college games, arguing that those types of player-specific wagers hurt the integrity of college sports.
Vali said the increase in illegal gambling is no coincidence; it’s been spurred by the rise in popularity of legal betting, which has pushed more people into the space overall.
“Because you’ve legalized and regulated [sports betting], you’ve now legitimized it and created an updraft of activity into illegal gambling,” Vali said. “There are so many different ways that people can be channelized into the marketplace—they can come from search engines, where most of the search will be mixed up [in terms of] legal and illegal.”
He added that coordinated action between states is the long-term solution to minimize illegal gambling and maximize tax revenue collected from licensed sportsbooks.
“There’s no … magic bullet that’s going to fix everything here. It’s a bunch of good people working together in the right ways that lead to the benefits of [this] commerce coming back home to America, rather than all this money being taken offshore somewhere,” Vali said.
