Every year, more states in the US allow legal sports betting, yet the rise in offshore betting sees some companies continue to steal billions of dollars from American gamblers eager to place their wagers. An estimated $150 billion or more is transferred yearly by experts to agents and weakly controlled offshore websites from US gamblers. That enormous amount is the amount of taxes that American taxpayers lost as a result of the wagering habits of their own people.
The main reason for this booming offshore market’s survival is the antiquated federal laws on sports betting. The 1992 Professional and Amateur Sports Protection Act (PASPA) prohibits betting on sports events, and it took until 2018 to be overturned. This results in Americans’ passion for sports betting being directed into unregulated offshore firms rather than through channels that are authorized by law.
While official figures for black market operations are naturally difficult to come by, a variety of industry and government estimations aid in estimating the untaxed American income from offshore betting.
Based on realistic estimates from sports betting’s increasing legality, the American Gaming Association trade organization testified in 2022 before Congress that Americans unlawfully bet over $150 billion annually with foreign bookies. They conclude that the amount wagered abroad probably surpasses the $57 billion in legal wagers made by Americans in sanctioned establishments or mobile applications.
It also implied that there has been an increase in offshore betting recently. It came to a plausible conclusion that, in recent years, American bettors have accounted for one-third ($4.5 billion) of the $15 billion sportsbook sector on the Caribbean island of Antigua.
Lost tax revenues from offshore betting
By utilizing standard state-level sports gambling levies on estimates of illicit betting amounts, one may determine the annual amount of tax money that is leaked to foreign countries.
Regulatory sportsbooks are subject to varying state tax regimes, with an average of 10–15% of handle (total amount wagered) and occasionally a larger percentage for mobile. Currently, sports bets in Nevada are subject to a percentage charge of up to 6.75%. A few of jurisdictions charge 15% or more, and Pennsylvania is the only state in the US that taxes the profits from online sports betting at a rate of 36%.
A possible $15 billion in US tax income might be obtained by extrapolating mainstream tax rates of about 10% to the estimated $150 billion in unlawful wages earned overseas annually. For comparison, legal sports gambling in Nevada brought in over $70 million in revenue in 2022. In contrast, taxing the same betting activities that the federal government forbids could potentially bring in upwards of $1.5 billion.
Lower income households hit hardest
It is likely that the tax incidence on offshore gaming is disproportionately borne by lower-income Americans. Due to their less favorable credit records, lesser incomes have more difficulty using credit cards — which are necessary for regulated internet betting in legal jurisdictions — while playing safely onshore as opposed to merely paying cash to nearby bookmakers who are operating illegally and evading verification.
These unofficial bookmaking networks easily direct untaxed wagering activity toward the trillion-dollar offshore gaming industry, so depriving impoverished areas of a correspondingly higher amount of tax money. However, as compared to legal options, inadequate rules can frequently expose impoverished populations to the predatory hazards associated with offshore sites.
Redirecting low-income gamblers into responsible domestic channels and increasing public revenues from a booming industry that now lines offshore pockets are two potential benefits of lifting America’s federal betting prohibition.
Next steps for unlocking offshore tax potential
Updated federal legislation has made legal betting channels available to the whole economy. To sufficiently discourage ongoing offshore gambling, competitive tax rates that are lower than what unscrupulous unregulated bookmakers charge bettors on the black market will be necessary.
When legislators acknowledge sports gambling earnings as a source of public revenue instead of arbitrarily outlawing it due to tax rate imbalances, American gamblers will be able to channel their online energy into carefully regulated local businesses that reinvest billions of dollars annually into community needs rather than sending it mysteriously abroad under the current prohibition.
America’s oversimplified prohibitionist approach to sports gambling resulted in years of lost income opportunities worth billions. However, things are turning around. It is to become harder for Congress to pretend that regulating the activities of American bettors won’t have a significant positive economic impact, since more than half of states are now pursuing legal sports betting regimes in violation of out-of-date federal laws. Until that fully changes however, the best offshore betting sites for Americans are still going to be popular because there is no other option.
By lifting puritanical bans, we can bring offshore betting out of the shadows and use its potential to create jobs while rerouting funds through responsible local channels rather than poorly regulated overseas operators. The possibilities are too immense to ignore any longer.
