By trying too hard to control sports betting, some state governments are achieving the opposite of their goals: they are empowering black market operators, putting consumers at risk, and turning away tax revenue that could be collected from a robust legal industry.
The intentions may be good — protecting consumers, preventing addiction, keeping crime out — but when policy relies on over-taxation, outdated restrictions and monopoly control, the results are both predictable and troubling. That's the reason why the Consumer Choice Center has recently published its 2025 U.S Sports Betting Index.
Let’s begin with a basic economic truth: When a legal market is smothered by excessive regulation and punishing tax rates, a black market inevitably fills the gap. Legal sports betting apps — where permitted — can offer consumers safe, transparent, and regulated environments.
But in many states, such competition is either banned outright or heavily throttled. That leaves room for illegal bookmakers to flourish, often with ties to organized crime, little regard for age restrictions, and zero incentive to protect vulnerable populations.
Consider Montana. The state’s only legal sports betting option is run through the Montana State Lottery, which only allows betting on the premises of licensed brick-and-mortar establishments. Smartphone users can download the app, but it becomes functional only when they’re physically inside a betting location.
This system is wildly out of step with modern consumer behavior, which demands mobile convenience, not location-based restriction.
Worse still, Montana’s SB555 would go even further by expanding the definition of "gambling" so broadly that it might sweep in crypto exchanges and even free-to-play gaming apps.
Instead of innovating to provide safe, regulated digital betting, the state is reaching for more prohibitions — an approach that has already failed to suppress black market activity.
Taxation is another major barrier. States like New York, Rhode Island and New Hampshire advertise a 50% tax rate on sports betting profits, but due to additional operating costs, effective tax burdens reach a staggering 81%.
No other leisure industry faces this kind of punitive financial environment. These high rates make it nearly impossible for legal operators to compete with illicit ones, who of course pay no taxes and incur no regulatory compliance costs.
This heavy-handed model is spreading. Massachusetts recently proposed the “Bettor Health Act,” which would raise taxes on digital platforms to 51% — in line with the worst offenders — and add strict advertising bans and daily affordability checks.
These proposals, while perhaps well-intentioned, would tie the hands of legal platforms and give illegal operators a wide-open lane.
The impact of such policies isn’t just theoretical. The latest research from the American Gaming Association paints a clearer picture of consumer behavior: 51% of sports bettors use only legal platforms, 34% mix legal and illegal options, and only 15% rely exclusively on illegal sources.
That 15% is where the problem lies — and that’s the group that good policy should be focused on bringing into the legal fold. But when states limit access to legal, easy-to-use platforms, and raise the cost of doing business so high that legal services become uncompetitive, they unintentionally push more people toward shady alternatives.
Contrast this with the more open, competitive frameworks in states like Nevada, Iowa, Wyoming, Kansas, and West Virginia. Nevada may be the gold standard with its full 55/55 score in regulatory rankings, but smaller states are also showing how smart policy can foster a thriving legal market while minimizing illegal activity.
The national trend is promising: The number of states where sports betting is illegal has fallen from 15 in 2022 to just 11 today. And that number will likely shrink further, with states like Hawaii, Minnesota, and Texas currently considering legislation to legalize sports betting. These states should take care not to repeat the mistakes of jurisdictions that treat betting as a vice to be controlled rather than a consumer activity to be regulated.
The key lesson here is simple: Prohibition and overregulation don’t eliminate demand — they just drive it underground. If policymakers are serious about curbing the black market, protecting consumers, and generating public revenue, they must embrace competitive, legal sports betting markets that are accessible, fairly taxed, and digitally enabled.
States that have done so are already reaping the benefits. Those that haven’t — like Montana — remain cautionary tales of how too much control can lead to chaos.
Let the legal market work. It’s not just good economics — it’s good policy.
Bill Wirtz is the senior policy analyst at the Consumer Choice Center, focusing on new technology, agriculture, trade and lifestyle regulations. He recently published "No Copy-paste: What Not to Emulate from Europe's Agriculture Regulations." Read Bill Wirtz's Reports — More Here.
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