Home » Betting News » States see legalized sports betting as a tax windfall — but at what cost?

In the half-dozen years since the Supreme Court in 2018 effectively allowed legal sports betting in all states, 38 of them and D.C. have to some extent authorized wagering — often with the express purpose of stabilizing state finances by taxing the new business. Sure enough, gambling on games has exploded, mobile sports betting apps have proliferated and Americans are wagering — and mostly losing — increasing amounts of money. They bet nearly $120 billion in 2023, netting the gambling industry close to $11 billion in revenue.

And at first glance, it would appear that states are raking in the expected rewards. New York brought in the most in gambling tax revenue last year with $876 million, a 24 percent increase over 2022. Maryland brought in $64 million, and Virginia brought in $74 million.

A closer look at the numbers, however, shows that sports betting might not be quite the financial panacea many were expecting — even as the unintended consequences become more evident. States, including big ones such as California and Texas, that are still deciding whether to join the sports betting frenzy should take note — and proceed with caution.

As it happens, a dozen states actually saw gambling tax revenue drop in 2023 from the previous year. Delaware saw a 44 percent decline, likely a result of the increased competition from Maryland, which legalized online gambling in 2022 — Marylanders no longer had to cross the border into the next-door state to place certain wagers. Similarly, Massachusetts netted nearly $100 million in gambling taxes in 2023 after legalizing sports betting, but neighboring Maine and Rhode Island saw big declines.

Also, some states are starting to complain that their betting tax revenue is falling short of what it was projected to be when they legalized sports gambling. Arizona was supposed to bring in some $100 million a year when gambling was legalized in April 2021, but the actual amount was only around $26 million and just $34 million in 2023.

Kansas legalized sports betting in late 2022, but in 2023 the state reaped only around $12 million, less than half of 1 percent of the $2.8 billion in total wagers. The reason is that state lawmakers, bowing to gaming industry lobbyists, set the tax rate at just 10 percent and allowed sportsbooks multiple deductions and exemptions. Neighboring Missouri is now considering legalization — and looking to Kansas as a cautionary tale.

Against the backdrop of disappointing revenue, the societal costs of sports gambling loom that much larger. Problem gambling has led to joblessness, bankruptcies, depression and suicide attempts. Those translate into financial costs — for health care, unemployment insurance and the criminal justice system. The total could be as much as $7 billion, in addition to $10 billion in lost productivity, according to the National Council on Problem Gambling. The organization estimates 6 million adults might have gambling problems, with 2.5 million severely addicted.

The impact of gambling addiction, like that of many other social ills, is not evenly or equitably distributed. Men are more likely to have gambling problems than women, as are people younger than 30. And the problems reportedly affect Black people more than White people.

There are various bills in state legislatures aiming to address some of the most harmful side effects of unregulated sports gambling. Some measures, following European examples, would ban all advertising for gambling sites and prohibit the use of sports personalities in ads — although in the United States such bans might raise First Amendment concerns. Some proposals would cap the number of times, or amounts, any individual could bet in a certain period, such as 24 hours.

Several states, including North Carolina and Louisiana, are considering banning “prop bets” — wagers not on the outcomes of contests but on the performances of individual athletes — for college sports, following a call from NCAA President Charlie Baker. Advocates of the bans say they are needed because college players live in the community, making them more susceptible to pressure and intimidation from gamblers. Prop bets should be disallowed for professional sports, too, or banned during games, since rapid-fire micro-betting feeds problem gamblers’ worst and most impulsive gambling behavior.

Lawmakers considering these modest regulations do so conflicted by their interest in maximizing state revenue from gambling, disappointing though it might have been so far. It’s an uncomfortable trade-off. They could have avoided it by focusing on, and adopting, responsible fiscal policies instead of the revenue quick fix of legalized sports betting.


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