All Bets are Off: State-Sponsored Sports Betting Isn’t Worth the Risk

June 13, 2018

Misha Hill
Policy Analyst

If I were a betting woman, this would be a particularly exciting time. A May ruling from the Supreme Court has opened the door for states to permit legal betting on major league sports. The Washington Capitals just won the Stanley Cup, the first major sports championship in the District of Columbia in 2 years. The Golden State Warriors bested the Cleveland Cavaliers for the third time in four years. And Justify was the thirteenth Triple Crown winner in the century long history of the three horse races. Pre-game and pre-race odds pegged these winners as sure and easy bets.

The chance to win big is also a temptation for state lawmakers. Many state legislators and regulators are considering expanding state-sponsored gambling by allowing betting on major league sports games. But the revenue states could bring in isn’t worth the risk. An 2017 study estimated that sports betting could contribute $3.4 billion in state and local taxes, but that accounts for less than 0.3 percent of total state and local revenue. As is outlined in this brief, legalized gambling, including lotteries, casinos, and other wager-involved activities , is an unsustainable and inadequate long-term revenue source. With the exception of Utah and Hawaii, every state and Washington D.C. have some form of legalized gambling. State lotteries are by far the most common and are often one of the largest sources state revenue. But there are many hidden costs of state-sanctioned gambling, and it’s not clear that they outweigh the benefits, especially in the long term.

Several states already had mechanisms for regulating sports betting before the Supreme Court ruling. This includes New Jersey, the state that brought the case to the Supreme Court; Delaware, which was the first state to open sports betting on June 5; Mississippi and West Virginia. The tax on wagers ranges from 8 to 10 percent. About 20 other states considered bills authorizing sports betting during the 2018 session, and a dozen of those states are still in session. Even if bills are passed this session, it’s reasonable to expect that states will face some of the same pitfalls that have occurred when expanding other forms of gambling. Early adopters will likely see greater revenue gains as they will not have as much competition for neighboring states and may be able to attract out of state bettors. But states should not expect revenue windfalls from sports betting. Nevada has allowed sports betting since 1984, but it only accounts for 2 percent of the state’s gambling revenue.

In addition to the meager revenue, gambling also has many hidden costs, including encouraging consumers to spend more. This means that consumers have less to spend on other goods. Increases in gambling revenue also means decreases in sales tax revenue. Further, gambling is a regressive source of revenue, that is individuals with lower incomes contribute a larger share of their income than those with higher incomes. Although the prospect of sports betting and other regulated gambling may be a tempting revenue source for state lawmakers, this regressive and unsustainable revenue source isn’t worth the risk.