America’s bad bet on expanding legal sports gambling

Fans walk past a Fanduel sports betting location at Footprint Center before Game Five of the Western Conference First Round NBA Playoffs between the Phoenix Suns and the New Orleans Pelicans on April 26, 2022, in Phoenix, Arizona. | Christian Petersen/Getty Images

The unfortunate consequences of the huge growth of sports betting, explained.

The United States is in the midst of a sports gambling boom, and it may be a generational policy mistake.

Anyone who has watched the Super Bowl, listened to a sports podcast, walked into an arena that has a gambling parlor, or, in my case, opened my mailbox to see direct mail from DraftKings offering “free bets” has seen the explosion in sports betting throughout the US.

That’s a recent change, and a fairly big one. For most of the 20th and 21st centuries, betting on sports was mostly limited to black-market bookies and the state of Nevada. Intermittent scandals like the 1919 Black Sox and mid-century college basketball match fixing and point shaving kept a stigma around sports gambling and convinced leagues it was better to keep the industry limited.

Laws were occasionally passed to keep sports gambling a gray- or black-market activity, including the 1961 Federal Wire Act, which banned the use of wire communications for “interstate or foreign commerce of bets or wagers … on any sporting event or contest,” and the 1992 Professional and Amateur Sports Protection Act (PASPA), which functionally banned sports gambling outside of Nevada and a few other states with more limited sports betting.

Multiple intersecting threads brought the end of this decades-long regime. First, in the 2010s, the companies DraftKings and FanDuel used a legal gray area around fantasy sports’ status as a purported game of skill to rapidly grow into cultural and financial behemoths. One couldn’t bet on an actual game, but the performance of a fantasy team composed of real players was a different matter.

Second, in part due to lucrative partnerships with DraftKings and FanDuel, sports leagues’ longtime aversion to legal gambling gradually reversed as owners and commissioners saw the potential for a new revenue stream. (In 1991, NBA Commissioner David Stern testified in front of Congress vehemently opposing legalized sports betting. Twenty-three years later, his successor, Adam Silver, wrote a New York Times op-ed headlined “Legalize and Regulate Sports Betting.”)

Finally, the emergence of internet and offshore gaming companies allowed unregulated gambling to proliferate among Americans with the technical know-how to access the sites and skirt payment restrictions.

As all this was happening, New Jersey had been on a quest to challenge PASPA, the 1992 gambling ban, in federal court. When the Supreme Court finally heard the state’s challenge and invalidated PASPA in 2018, there were sports leagues, states, and a well-heeled industry ready to take advantage of the opening. Since then, more than 30 states have legalized sports betting in some form, with over 20 allowing gambling by mobile phone.

New Jersey, the state that brought the suit to the Court, has seen sports bets rise from $1.2 billion in 2018 to $10.9 billion in 2022; a forthcoming study by Rutgers estimates 13 percent of the state now qualifies for a gambling problem.

That increase is an indication of how sudden and consequential the legalization of gambling has been — and why it’s not a policy shift we should be celebrating.

The dire consequences of the sports gambling boom, explained

The common-sense argument for legalized sports gambling is on its face reasonable. If gambling is going to happen anyway, states should tax it and regulate it. Advocates also argue that it’s a matter of individual freedom: If I enjoy gambling and I’m not hurting anyone, why can’t I do this? Let people live a little.

But the choice to legalize sports gambling hasn’t been so simple. First, implicit in this argument is that the amount of sports gambling is fixed, and that it’s simply being moved from the untaxed, unregulated black market to the revenue-generating legal market.

The entire point of the industry’s legalization push, though, is that it massively expands the pool of potential customers. Many casual sports fans aren’t going to learn the cumbersome methods needed to bet at an offshore sportsbook, but they will download an app being hawked on TV by Wayne Gretzky or Barry Sanders that’s in their phone’s app store.

The result has been an explosion in gambling. And based on the research we have, the harm such widespread adoption has caused is not trivial. With the United States’s boom so recent and therefore data somewhat sparse, the United Kingdom is a useful comparison. It has had a legalized and regulated system for over 15 years, one that includes not just sports but casino gambling.

An extensive report by Bloomberg cataloged the harms since legalization: Sixty percent of industry profits come from the top 5 percent of users; the industry, supposedly regulated, has an estimated 36,000 children addicted to it; the government estimates 8 percent of suicides are gambling related.

In 2016, the situation was already so bad that the co-founder of Paddy Power, an industry leader, resigned from the company’s board while “fighting back tears” because he believed he was complicit in an immoral industry, Bloomberg reported.

Since then, the situation has only gotten worse, and amid a surge of suicides linked to gamblers deep in debt, the UK government has promised a policy plan on the gambling industry paired with reforms and new regulations.

None of this would be a surprise to experts in addictive industries. Mark Kleiman, the late public policy professor who advised states legalizing marijuana, frequently brought up the “80/20 rule” — that 80 percent of most industries’ profits come from its top 20 percent of users.

In a 2013 Vice interview, Kleiman said:

The public interest is in the provision of alcohol, cannabis, gambling services to people — adults — who use them responsibly and harmlessly. … The commercial interest is in finding those people with problems and in making as many of them as possible. If you’re in the alcohol business, you’re in the alcoholism business. They all have these signs that say ‘drink responsibly’; that means ‘please put us out of business.’ It’s not responsible drinkers that build breweries.

The same logic applies to sports betting. It’s not casual gamblers that will expand these companies’ profits, it’s the addicts. In New Jersey, “About 5% of all sports bettors placed nearly half of all bets and spent nearly 70% of the money,” wrote Lia Nower, the director of the Center for Gambling Studies at Rutgers, in the Conversation.

Proponents of legalization would argue that these kinds of arguments could apply to drugs, whether marijuana or alcohol, and yet momentum has been toward destigmatizing those substances.

But there’s a key difference. The war on drugs has meant that millions of people have been convicted for drug-related crimes. Those people are imprisoned, gain lifelong felony convictions that scar their employability, and destroy families.

By contrast, there was no war on gambling. The harm involved in sports gambling’s illegality was mostly roadblocks to gamblers and lost tax revenue. According to the National Incident-Based Reporting System used by the FBI, there were 893,682 drug offenses reported in the United States in 2021. There were 504 betting/wagering offenses. Sports gambling was functionally already a decriminalized activity.

The relentless search for more and more consumers

These sorts of arguments can sound conservative, even Puritan: “Gambling is an unvirtuous activity we ought to discourage.” But there’s a progressive, even leftist angle to this.

Science fiction author Ted Chiang told Ezra Klein in 2021 that he believed “most fears about A.I. are best understood as fears about capitalism.” The same is true here, in that gambling isn’t per se the problem; someone making a bet with a friend over their rival teams isn’t immoral, and a fantasy league with a buy-in isn’t sinful.

But in today’s United States, every policy decision opening up sectors to the markets ends up a maximal one, and companies preying off what ought to be casual fun will now saturate every television market, every piece of stadium advertising real estate, in an attempt to turn non-gamblers into casual gamblers, casual gamblers into regulars, and regulars into addicts. (For its part, the gaming industry has repeatedly emphasized the harms of offshore gambling and pointed out its own industry-led initiatives toward responsible gaming.)

Here’s the thing: A multinational profit-making industry and responsible gambling by customers are mutually exclusive. This is not hypothetical. The specific event that spurred Stewart Kenny, the Paddy Power co-founder, to resign from the board of directors was learning that “senior managers shelved a safer gambling campaign it was running in Australia because it had proved too effective and was costing them money.” This is exactly what Kleiman and other scholars would have predicted.

Every possible customer vein will be mined. The University of Colorado at Boulder in 2020 signed a $1.6 million partnership with a gaming company that included $30 for every new bettor the University recruited, an obvious play at signing up college students even though the legal gambling age in Colorado is 21. (The $30 incentive was discontinued in 2023 after negative press.)

The Gaming Society, a “betting education platform,” markets itself to women by promoting the opportunity to “prope[l] women’s sports forward through sports betting.” Its tagline? “Bet on women.”

As anyone who watched the Super Bowl can tell you, there’s something unsavory about the direction this takes our society.

The United States is never going to be Vatican City, but it’s hard not to be a little queasy at public universities emailing students to “place your first bet (and earn your first bonus),” as the New York Times reported Louisiana State University doing, or Texas Christian University partnering with a casino as a “presenting sponsor” for its stadium’s new collection of VIP suites. The speed and intensity with which the gaming industry has swung state governments and public universities illustrate how difficult it will be to trust local legislators to stand up to and rigorously regulate the industry.

Financialized industries under modern, liquid capitalism will never be happy with small-time brands earning modest profits. DraftKings has already gone through a reverse merger with a Bulgarian tech firm and a special-purpose acquisition company. Fanduel was acquired by Paddy Power, that European sports betting giant whose co-founder resigned.

And what about the tax argument? Maybe legalized sports gambling does have a negative side, but the benefits toward various worthy state initiatives are worth it.

The first problem is that government revenue really doesn’t work this way. Revenue is fungible: As soon as legislators see a service being funded by one source, it’s a green light to cut its funding from elsewhere. State lotteries, for instance, were widely created with claims that the revenue would bolster, say, education. But instead of that lottery money being added on top of existing education funding, it often ended up replacing it, as state revenue could be diverted elsewhere. Many states have worse education crises than before lotteries were instituted.

To put it another way, states can raise revenue whenever they want, through whatever means they want. If more money is needed for a particular state service, it can be raised through any type of tax.

It’s also a conceptually odd use of a sin tax, considering that the entire point of one is to discourage activities that are damaging to public or societal health. Alcohol and tobacco taxes artificially raise the market price of those goods because higher prices curb alcohol and tobacco use.

But here, the logic is reversed, and we are intentionally expanding the amount of gambling and gambling addiction in order to juice state revenue numbers.

Gaming out the future

Unfortunately, the horse is likely very far out of the barn. These industries are already huge lobbying players, and there’s very little historical precedent for re-criminalizing liberalized industries. The United States’s expansive First Amendment rights will likely make advertising restrictions difficult to pass, as with prescription drugs.

That said, some steps are available around the edges. Massachusetts banned all college advertising of sports betting, for instance. To a cynic, though, there’s something farcical about this now out-in-the-open and legal industry being “regulated” with bills that would, for instance, require a pop-up message about responsible gambling every 10 wagers.

A strange irony of all this is that sports gambling is not the most profitable, or addictive, industry in this sector. Oddsmaking is a skill; bookmakers can set the odds incorrectly or simply get unlucky and have to pay out considerable winnings.

Which is why, as the Times reports, the end goal is full “casino” gambling on your phone — slot machines, roulette, and so on. The industry has tried to rebrand this as iGaming, with the chief executive of DraftKings telling lawmakers at a conference: “It is time for your state to add iGaming … Not in the future, but now.”

One policy error has already been made across much of the United States. It’s not too late to prevent another one.

Jack Meserve is the managing editor of Democracy: A Journal of Ideas.

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