That depends on the regulation. If the regulation makes sure the activity is not widely advertised, then it can be useful. However, if the regulation allows gambling companies to widely advertise and make their products highly accessible, such as through smartphone apps, then the increase in activity will outweigh any benefit.

I’ve seen this argument before, but how much bigger would the regulated market have to be before we call it a net neutral?

Because if there were $1 billion in illegal bets, and $20 billion in legal bets, which of those would be worse for society?