A protection racket is a type of racket and a scheme of organized crime perpetrated by a potentially hazardous group, usually a criminal organization, which guarantees protection outside the sanction of the law to a business, entity, or individual from violence, looting, arson, robbery, and other such threats, often in situations or regions in which such threats may often not be effectively prevented or addressed by the prevailing system of law and order or local government, in exchange for the extorted payments in cash or kind. The perpetrators of the protection racket may offer these services to protect vulnerable targets from other dangerous individuals and groups or may simply offer to refrain from themselves carrying out threats on the targets, and usually both of these forms of protection are implied in the racket. In many cases, there exists an actual and legitimate outside threat to the target of the protection racket, and the racketeers will in fact protect the target; however, often the racketeers will themselves coerce or threaten the business or targeted individual or entity into accepting the protection, often with the threat, implicit or otherwise, that failing to acquire these protection services will lead to the racketeers themselves contributing to the existing problem. In some instances, the potential threat to the target may be caused by the same group that offers to solve it, but that fact may be concealed in order to ensure continual patronage.
In other words, at least ostensibly, the protection racket is a racket that sells security, traditionally physical security. Through the credible threat of violence, the racketeers deter people from swindling, robbing, injuring, sabotaging or otherwise harming their clients. Protection rackets tend to appear in markets in which the police and judiciary cannot be counted on to provide legal protection, because of incompetence (as in weak, corrupt, or failed states, or in cases in which the state does not provide adequate or any protection for certain ethnic or socioeconomic groups), illegality (when the targeted entity is involved in black markets), and/or where other forms of mistrust of the state and government protection exist.
Protection rackets are indistinguishable in practice from extortion rackets and distinguishable from private security by some degree of implied threat that the racketeers themselves may attack the business if it fails to pay for their protection. A distinction is possible between a "pure" extortion racket in which the racketeers might agree only not to attack a business and a broader protection racket offering some real private security in addition to such extortion. The criminals might agree to defend a business from any attack by either themselves or third parties (other criminal gangs). However, in reality, that distinction is doubtful, because extortion racketeers may have to defend their clients against rival gangs to maintain their profits. By corollary, criminal gangs may have to maintain control of territories (turfs), as local businesses may collapse if forced to pay for protection from too many rackets, which then hurts all parties involved.
Certain scholars, such as Diego Gambetta, classify criminal organizations engaged in protection racketeering as "mafia", as the racket is popular with both the Sicilian Mafia and Italian-American Mafia.