Sure a black market would be worse, but why not just regulate it. Government shouldn't have an incentive to ensure that gambling exists and remains profitable which they do so long as they're running it. Government shouldn't be directly engaged in the business of any vice for that reason.

To add to the other reply, governments can be pretty good at unoptimizing the user's experience. As opposed to, like, game companies trying to make it really easy and tempting to pay for stuff on your phone, the specific government person in charge of this stuff is (hopefully) not walking home with pockets full of money if they get people to gamble.

If it's something like a police officer whose funding comes from collecting fines, sure, there are really bad incentives there. But if the government casino department isn't eating what it kills then it doesn't seem like a problem.

Because the government is less prone to bouts of greed.

No stockholders who expect infinite profit growth, no CxO with bonuses dependent on increasing revenue, and has public oversight by default: government should be the only entity trusted to directly engage in any vice business. They are the only entity I trust to put honest effort in decreasing their user base.

The government still has that incentive if it's taxing companies that profit from gambling.