Why was gambling legalized?

At this point gambling is already de-facto legal in many areas,

including horse racing, Dog Racing, bingo, state lotteries, tribal casinos, and just about anything in Las Vegas.

The reason for the laws against unsanctioned forms is the element of criminal activity that inevitably occurs. In sports betting, from boxing to Basketball, gambling-related bribery or intimidation can ruin legitimate competition. Many jurisdictions are "soft" on small gambling operations as it is, and in some areas only operations that are flagrantly illegal are prosecuted.