The 2018 Supreme Court decision permitting states to legalize sports betting has significantly expanded the online gambling market. Recent data indicate that online gaming accounted for a record 29.3% of total commercial gaming revenue in the first quarter of this year.
With the 2024 Olympics in Paris approaching, activity is expected to surge on popular gaming platforms like DraftKings and FanDuel. Sixteen states have launched legal sports betting markets since the Tokyo games three years ago.
Comprehensive study on online gambling legalization
A groundbreaking study from the University of California San Diego Rady School of Management provides extensive insights into the effects of online gambling legalization on tax revenue and gambling behaviors in the U.S. The study found that while legalization boosts state revenues, it also leads to increased irresponsible gambling, particularly among lower-income consumers.
“Our data show that online gambling legalization leads to more irresponsible gambling spending among lower-income consumers than among higher-income gamblers,” said Kenneth C. Wilbur, professor of marketing and analytics at the Rady School and co-author of the study. “We define gambling irresponsibly as spending a high proportion of their income—such as 10%—on gambling.”
Currently, 30 states permit online sports betting, and seven of those states also allow online casino gaming. The researchers analyzed five years of data from 32 states, comparing 18 states that changed online gambling policies to 14 that did not, using a generalized synthetic control framework to evaluate the policy changes.
Key findings on gambling behavior
The study utilized data from four sources: state revenue and tax data, national gambler helpline calls, Center for Disease Control (CDC) suicide records, and digital payment records for 717,724 online gamblers. Among these gamblers, 96% lost money to online gambling, with only 4% making a profit. This is by design, as online gambling platforms often restrict frequent winners’ accounts.
Researchers found that lower-income gamblers are more likely to increase irresponsible gambling following state policy changes. For approximately 250,000 participants, the researchers could analyze gambling expenditure as a percentage of income using direct deposit data. In Canada, responsible gambling guidelines suggest spending less than 1% of monthly income on gambling. However, the data revealed that 43% of panel gamblers exceeded this threshold, with 5.3% spending more than 10% and 3.2% spending over 15% of their monthly income on gambling.
“Our analysis shows that online gambling legalization leads to far more problematic gambling among lower-income gamblers than among higher-income gamblers,” Wilbur said. “These findings emphasize the high financial risk associated with online gambling.”
Implications for policy
The goal of the study is to provide credible evidence to inform policymakers as they consider new or revised gambling regulations. Currently, some states are contemplating bills to legalize gambling, while others, such as New York and Illinois, are considering expanding existing laws.
The study found that calls to gambling helplines increased in states that legalized gambling, most notably in New York. However, the researchers did not observe an increase in suicides. They noted that suicide data from the CDC has limitations in measuring gambling-related suicides, as state coroners typically do not document gambling as a contributing factor.
“We tried to collect as many relevant and comprehensive data sets as we could to help inform policymakers,” Wilbur said. “Given our results, legislators might be concerned that while tax revenue is increasing, much of it comes from wealthier individuals, or ‘whales.’ However, the most severe gambling problems are likely experienced by smaller-scale, lower-income gamblers, or ‘minnows.’ This might justify increased spending on assistance for problem gamblers.”
The research analyzed both online casino gaming and online sports betting. While sports betting revenue typically follows football and basketball seasons without a strong upward trend, states with legalized online casino gaming show sustained increases in betting activity over the five-year period.
The authors conclude that legalized gambling has both benefits and drawbacks. “On the positive side, states can generate revenue, potentially reduce illegal gambling, and make it easier for individuals to seek help for gambling problems,” they wrote. “On the downside, increased accessibility and participation can lead to higher rates of problematic gambling behavior.”
Coauthors of the paper include Wayne J. Taylor of Southern Methodist University and Daniel M. McCarthy of the University of Maryland.
