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A new study from the University of Maryland's Robert H. Smith School of Business and co-authors at SMU Cox School of Business and UC San Diego Rady School of Management shows that states' rush to legalize online sports betting is reshaping consumer behavior, state finances and public health. The is posted to the SSRN preprint server.

Since the Supreme Court struck down PASPA (Professional and Amateur Sports Protection Act) in 2018, 38 states and Washington, D.C. have legalized some form of sports wagering. Leveraging a panel of anonymized financial-transaction data, the authors tracked outcomes for more than 700,000 gamblers across 11 legalization "treatment" states.

Key findings

• Spending soars: Legalization increases gambling spending by 369% and irresponsible gambling rates by 372%
• States benefit fiscally: $0.78 per capita monthly in new tax revenue
• Impacts aren't equal: Lower-income individuals experience disproportionately higher rates of problematic gambling
• Â鶹ÒùÔºical casinos are not harmed: The data shows legalized online betting may not hurt and could actually help casino spending in many cases, which would be indicative of complementarity and not cannibalization. This could be reassuring for states like Nevada that have historically remained on the sidelines because of concerns that online sports betting could hurt the entrenched casino business there
• Spillovers include a 20% increase in alcohol consumption and 75% more calls to gambling helplines

"Legalization delivers real fiscal benefits, but it also expands the pool of people betting beyond their means," says UMD Smith Associate Professor of Marketing Daniel McCarthy, who co-authored the work with SMU's Wayne J. Taylor and UCSD's Kenneth C. Wilbur. "Policymakers should weigh the extra tax dollars against the social costs and consider safeguards like income-based wager limits."

Policy backdrop

Momentum continues to build, McCarthy notes, with a bipartisan bill now before Congress proposing uniform consumer-protection standards for online betting through changes to the tax deductibility of sports betting losses.

"Cutting back the tax deductibility of sports-betting losses might look like a way to discourage gambling, but in practice it targets professional and high-volume bettors more than casual fans," McCarthy adds. "Many of those sharp bettors will simply migrate to offshore or illegal markets where regulators lose sight of the activity and consumers receive less protection. So, the wager volume doesn't disappear—it just shifts, and the net effect on consumer welfare and state revenue is far from clear."