By Justin Leventhal, American Consumer Institute
Since 2018, when the Supreme Court struck down the federal ban on sports betting, over half the country has legalized online sportsbooks—bringing in billions in tax revenue. But California is heading in the opposite direction. Its laws are so strict, the State Attorney General may end up making online fantasy sports illegal.
In 2017, even before online sports betting was legal, the illegal sports betting market was estimated to be between $149 billion and $500 billion. By 2023, that estimate had dropped to $63.8 billion. In just six years, illegal sports betting fell by more than half—using the low-end estimate and without adjusting for inflation. Despite claims that legalization would cause an increase in gambling, states without any legal sports betting saw larger increases in gambling than states that legalized online sports betting. Illegality doesn’t stop bettors; it just pushes them into the shadows. Californians will still find ways to play fantasy sports—they just won’t be above board.
The transition away from illegal sports betting is happening in states that legalize it. One 2022 study showed that 51 percent of sports bettors use only legal channels, while another 34 percent use both legal and illegal sports betting options. At the time, only 57 percent of gamblers lived in states with legal sportsbooks—and fewer had access to legal online sports betting. The growth of legal gambling alongside the expanding legalization shows bettors are moving away from illegal betting options in favor of legal ones.
Getting bettors to switch from black-market sportsbooks reduces the risks to players and brings people with gambling problems out of the shadows where they can get help, all while raising revenue for the state.
Offshore and black-market sportsbooks skip legal accountability. If they refuse to honor a bet or block withdrawals, there is no legal recourse. They also aren’t required to protect or support people with gambling addictions. They are free to take advantage of them at will. In contrast, legal sports betting platforms can be required to verify age, track money laundering, require timely withdrawals, and promote addiction services.
Bettors are not the only ones who benefit. Tax revenue from legal online sportsbooks is substantial—potentially funding not just addiction services but also funding schools and other projects. One study estimated that the U.S. loses $700 million annually in potential taxes to illegal online sports betting. This number seems low, considering New York nearly matched that in its first year of legalization and exceeded $1 billion in 2024. California alone has nearly twice New York’s population, and Bureau of Economic Analysis data shows Californians gamble more per capita. California is likely leaving over a billion dollars in annual revenue on the table. Not the best bet to make.
Thankfully, most of the country doesn’t share California’s stance. Support for allowing states to legalize sports betting rose from 63 percent in 2019 to 85 percent in 2023. Still, California isn’t alone. Rhode Island recently failed to pass a bill that would legalize online sports betting, continuing to forgo revenue and deny residents legal and safe sports betting.
States where online sports betting has been legalized can still have ongoing battles to keep safe betting options available. In Florida, a lawsuit seeks to overturn online sports betting, citing a provision in the state Constitution requiring citizens to vote to authorize “casino gambling.” The case hinges on whether online sports betting is “casino gambling.”
States like California and Rhode Island are clinging to outdated ideas about how sports betting works while the country modernizes around them. Their refusal to legalize online sports betting doesn’t prevent gambling—it simply surrenders it to the shadows, where consumers face greater risks and the state collects nothing. Legalization is a strategy to manage reality with transparency and safeguards, while raising revenue for the state. California doesn’t need more prohibitions—it needs to join the 21st century when it comes to sports betting laws.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow on Twitter @ConsumerPal.