The Offshore Threat: Risks of Illegal Gambling to Regulated US Operators

For legal sportsbooks and casinos, this illegal activity is a direct threat. Offshore sites can offer better odds and bigger bonuses because they avoid the high taxes (often 10%–51% of gross revenue), licensing fees, and compliance costs that regulated operators must pay. This uneven playing field erodes the market share of licensed platforms and undermines crucial consumer protection and responsible gaming efforts. State and federal agencies are now increasing enforcement to combat this powerful, non-compliant competition.

Scale of the Unregulated U.S. Gambling Market

The offshore market is not a small niche; its size rivals the regulated industry. Unlicensed sportsbooks handle an estimated $84 billion in wagers annually. Illegal online slots and table games alone generated $18.6 billion in revenue in 2024, a 38% increase since 2022.

Key data points highlight the scope of the problem:

• Total Wagering Volume: Americans wager around $673.6 billion annually with illegal operators.
• Revenue Captured: Illegal operators take in $53.9 billion in revenue, capturing about 31.9% of the total U.S. gambling market.
• Lost Tax Revenue: Unlicensed sports betting costs governments an estimated $1 billion in taxes. Illegal gambling overall costs states over $4 billion in taxes annually.
• Online Market Share: Unregulated operators captured an estimated 74% of U.S. online gross gaming revenue in 2024.

Why Do Players Still Use Offshore Sites?

Several factors drive American players to choose illegal sites over regulated options:

• Limited Legal Options: Only a few states have fully legalized online casino play (iGaming). This forces many gamblers to seek offshore sites for access to games not available in their local, regulated market.
• Anonymity and Crypto: Offshore operators often bypass strict know-your-customer (KYC) checks, allowing users to play anonymously. They frequently accept cryptocurrency deposits and withdrawals, which helps users avoid U.S. financial controls.
• Better Promotions: Because offshore sites pay no taxes, licensing fees, or compliance costs, they can offer more generous bonuses, credit lines, and higher betting limits. For regulated sportsbooks, compliance and taxes can consume up to 5% of a player’s total wagers, severely limiting what they can offer in promotions.
• Aggressive Online Visibility: Illegal sites invest heavily in search engine optimization (SEO) and affiliate marketing, causing them to appear prominently online. Research shows a site’s online visibility is the strongest predictor of players visiting it.
• Consumer Confusion: Surveys show many Americans struggle to tell the difference between legal and illegal gambling platforms. This makes them vulnerable to marketing for unregulated sites.

Major Risks to Licensed Operators and Consumers

The presence of a massive, unregulated market creates three primary areas of harm: consumer risk, financial crime, and an unfair competitive disadvantage for legal operators.

Consumer Harm and Lack of Recourse

Players who use offshore sites have virtually no protection or recourse:

• Scams and Withheld Winnings: Consumers have filed thousands of complaints alleging that offshore sites refused to pay out winnings, offered misleading bonuses, or outright disappeared. Since these sites are outside U.S. jurisdiction, players have no legal avenue to recover funds.
• No Dispute Resolution: Offshore operators lack regulatory oversight, third-party audits, and mandatory complaint procedures. There is no U.S. authority to mediate a dispute or enforce a payout.
• Data Security Risks: Users’ personal data is at higher risk of being sold or hacked. Victims have little recourse since the sites operate outside U.S. legal jurisdiction.
• No Responsible Gaming Tools: Unlike legal platforms, offshore sites offer no mandatory deposit limits, time-outs, or self-exclusion programs. This can exacerbate problem gambling and mental health issues.

Money Laundering and Organized Crime

Offshore platforms are major tools for financial crime:

• Money Laundering Vulnerabilities: Unlicensed gambling is a “very high” money-laundering threat. Criminals use these sites to move illicit funds from activities like drug trafficking, often using circular transfers, e-transfers, and cryptocurrency.
• Evading Financial Rules: Legal U.S. casinos must file Currency Transaction Reports (CTR) for cash over $10,000 and Suspicious Activity Reports (SAR) for suspicious transactions over $5,000. Offshore operators ignore these vital anti-money laundering (AML) requirements.
• Sports Integrity Risks: Inconsistent licensing standards among new offshore jurisdictions increase the opportunities for match fixing. Transnational crime groups use these platforms for match manipulation and to launder money.

Competitive Disadvantage for Legal Operators

The unregulated market directly undermines the success of licensed businesses:

• Uneven Playing Field: Legal operators must pay for licenses, follow strict compliance rules, fund responsible gaming programs, and pay high state taxes. Offshore sites bypass all of these, allowing them to offer superior financial incentives and attract players.
• Market Cannibalization: Unregulated sites siphon off a significant number of bettors, reducing the overall market share for legal operators. Enforcement actions, like cease-and-desist letters, have shown to boost legal market growth by up to 10% faster in active users.

Enforcement and Regulatory Response

State and federal authorities are ramping up efforts to fight illegal gambling:

• State-Level Actions: State regulators like the Michigan Gaming Control Board have issued numerous cease-and-desist letters to offshore platforms like Ignition Casino and Café Casino, ordering them to stop operating in the state. Many illegal sites have responded by withdrawing from the targeted states.
• Targeting Sweepstakes Casinos: Over 16 states have issued hundreds of orders or outright banned sweepstakes casinos that mimic real gambling.
• Calls for Federal Action: In August 2025, attorneys general from all 50 states wrote to the U.S. Attorney General urging the Department of Justice (DOJ) to crack down on illegal offshore operations. They asked the DOJ to use the Unlawful Internet Gambling Enforcement Act (UIGEA) to seize domain names and assets and block payments.

Recommendations for Moving Forward

To fully counter the offshore threat, industry and government must coordinate a comprehensive strategy:

• Harmonize Regulations and Taxes: State policymakers should consider moderate tax rates and harmonize state laws. Excessive tax burdens make it nearly impossible for legal platforms to compete with the promotional offers of zero-tax offshore sites.
• Increase Consumer Education: Public awareness campaigns must be launched to teach bettors the red flags of illegal sites, such as requests for crypto payments, overseas addresses, and promises of guaranteed payouts.
• Enhance Enforcement Collaboration: State and federal agencies, along with financial institutions, must coordinate actions like domain name seizure, IP blocking, and payment blocking.
• Strengthen AML Programs: Licensed operators must enhance customer due diligence, monitor for red flags, and ensure timely filing of CTRs and SARs to prevent money laundering.