On Nov. 8, Californians will vote on two ballot measures that would allow for different forms of sports betting in the state.
Proposition 26 would allow sports betting at licensed casinos and horse tracks on tribal lands and run by federally recognized Native American tribes.
Prop. 27 would allow tribes licensed to offer gambling and major gaming companies to offer online sports betting. These companies include FanDuel and DraftKings, which together make up roughly two-thirds of the U.S. online sports betting market.
“If both pass, they might both go into effect or the result could be decided in court, depending on which one gets more yes votes,” writes CalMatters economics reporter Grace Gedye in an article from June.
Although California is the only state with sports betting on the midterm ballot, it’s not the only state where sports betting is a topic of political discussion — and relevant for journalists across beats to understand. For example, Georgia gubernatorial candidate Stacey Abrams recently expressed support for legalized sports betting in her state. Abrams’ opponent, Gov. Brian Kemp, is opposed.
In Missouri, state lawmakers from both parties support legalizing sports betting, but Gov. Mike Parson is hesitant. Vermont lawmakers are considering taking up a sports betting bill during the next legislative session. Gubernatorial candidates in South Carolina and Texas support legal sports betting. In Florida, there is an ongoing lawsuit over whether the state should be allowed to give the Seminole Tribe the exclusive right to run online sports betting there.
Legal sports wagering in the U.S. has grown vertically in recent years — from less than $5 billion worth of bets placed in 2018 to $57 billion in 2021 — despite sports betting remaining illegal in nearly half of states. Sportsbooks, the entities that take sports bets, bring in about $4 billion yearly after wagers are settled.
The reason for this growth: a May 2018 Supreme Court ruling. Justice Samuel Alito, in delivering the 6-3 decision, reasoned that 1992 federal legislation banning states from allowing sports betting was unconstitutional.
Under the 1992 law, the Professional and Amateur Sports Protection Act, the federal government did not “make sports gambling itself federal crime,” Alito writes in the 2018 decision. “Instead, it allows the [U.S.] Attorney General, as well as professional and amateur sports organizations, to bring civil actions to enjoin violations.” Other than legislative powers the Constitution grants Congress, the federal government cannot “issue direct orders to state legislatures,” Alito writes. The majority interpreted the Professional and Amateur Sports Protection Act as doing so.
Here is how John Holden, an assistant professor of business at Oklahoma State University who has written extensively on sports gambling, explains the 2018 ruling:
“If the federal government wants to make sports betting illegal, they’re free to do so, but they can use the [Federal Bureau of Investigation] and the [Department of Justice] to enforce that,” Holden says. “They can’t tell a state legislature that you need to keep that law on the books and use your state police to go out and bust up gambling rings.”
A fundraising breakdown from the Los Angeles Times shows about $132 million has been raised to support Prop. 26, with about $43 million in opposition funding. Top backers include the Federated Indians of Graton Rancheria, the Pechanga Band of Indians and the Yocha Dehe Wintun Nation. Non-Native American casino and gaming interests are largely opposed — conversely, they have backed Prop. 27, which would open up sports betting to all gambling interests, not just Native American-run casinos.
Tribal gaming brings in nearly $40 billion a year across all tribes that operate gambling enterprises, according to the National Indian Gaming Commission. “Gaming operations have had a far-reaching and transformative effect on American Indian reservations and their economies,” write the authors of a 2015 paper about how the act affected tribal economic development. “Specifically, Indian gaming has allowed marked improvements in several important dimensions of reservation life.”
The landscape of legal sports betting
If California legalizes sports betting, it would represent a major coup for gaming interests in the state. In California, the most populous state, horse racing is the only legal form of sports betting.
Sports wagering is legal in 28 states plus the District of Columbia, according to a recent Washington Post analysis. Seven states prohibit online sports betting and only allow in-person wagers at licensed locations, such as casinos: Delaware, Maryland, Mississippi, Montana, New Mexico, North Carolina and North Dakota. Sports betting is legal but pending rollout in four states: Maine, Massachusetts, Nebraska and Ohio. Kansas is the most recent state to implement legal in-person and online sports gambling, as of Sept. 1.
States place a range of licensing fees on operators and tax rates on sports betting revenue, from a low of 6.75% in Nevada and Iowa to a high of 51% in New Hampshire and New York. States use tax revenues for a variety of purposes. Some, like Delaware, put sports wagering taxes toward their general fund. Colorado uses sports betting taxes to pay for its statewide water plan, Illinois funds transportation infrastructure and New York funds education programs.
In states where sports betting is legal, bettors can wager on nearly any major sporting event, both professional and amateur. For example, bettors can wager on the outcome of a baseball game, as well as events within the game, such as whether a particular player will hit a home run.
Polling indicates California may be unlikely to join the legal betting club. CalMatters reported earlier this month that despite various campaigns raising more than $440 million in marketing related to Props. 26 and 27, each measure is garnering support from less than a third of likely voters, according to October polling from the Institute of Governmental Studies at the University of California, Berkeley.
Below, we explore recent research on sports betting. Among the findings of the seven studies featured here:
- Sports bettors are more likely to be white, male, and exhibit psychological traits consistent with narcissism.
- Tax revenue from sports betting may appear substantial in raw numbers, but the impact on tax coffers is muted when compared with income and sales taxes, or tax revenue from other gambling offerings.
- Evidence is mixed as to whether introducing sports betting cannibalizes — eats away at — revenue from other types of gambling.
- Some college football referees may more heavily penalize betting favorites.
The nonprofit National Council on Problem Gambling estimates as many as 8 million adults in the U.S. may have a mild, moderate or severe gambling problem. However, there is a lack of comprehensive, recent academic research on the extent of gambling addiction in the U.S., and the societal costs.
If you feel you may have a problem with gambling you can get help from the National Council on Problem Gambling by call or text at 1-800-522-4700, or online chat at ncpgambling.org/chat.
Research roundup
The Income Elasticity of Gross Sports Betting Revenues in Nevada: Short-Run and Long-Run Estimates
Ege Can and Mark Nichols. Journal of Sports Economics, October 2021.
The study: The authors analyze quarterly sports betting data from Nevada covering 1990 to 2019, to explore whether sports betting might be a viable tax revenue stream for other states. Sports betting has been legal in Nevada for decades, so it is the only state with long-run data that can potentially provide insight on the tax base future in states that have legalized sports betting since 2018. The authors note that Nevada is a “mature” market for sports betting, meaning industry growth is relatively stable year to year. A state that newly legalizes sports gambling is likely to see an immediate jump in sports betting revenue, with industry growth levelling off over time.
The findings: In the short-run, quarter-to-quarter, the rise and fall of sports betting revenue in Nevada is most closely tied to changing sports seasons. The authors suggest this is due to differences in how much bettors wager on various sports — the NFL, for example, is “the most popular sport to place wagers on,” with revenues rising and falling as an NFL season begins and ends. In the long run, taxable income in the state and sports betting revenues tend to grow at similar rates. Sports betting revenue in Nevada is a small fraction of revenues from other sources.
The authors write: “Total sports betting revenue in Nevada, the amount kept by the casinos, was $329 million in 2019, implying $22.2 million in tax revenue for the state. In contrast, casino gambling in Nevada in 2019 was $12 billion, generating $810 million in tax revenue. Sports betting is a gambling activity where the amount retained by the casino, and consequently retained by the state, is relatively small as most of the money from losing bets is transferred to those with winning bets. Therefore, sports gambling is a smaller contributor to tax coffers compared to more traditional tax sources such as income and taxable sales or, if applicable, casino revenue.”
A Comparative Analysis of Sports Gambling in the United States
Brendan Dwyer, Ted Hayduk III and Joris Drayer. International Journal of Sports Marketing and Sponsorship, August 2022.
The study: The authors explore whether there are psychological differences between bettors and those who do not bet, as well as differences in how closely bettors identify with social institutions, such as religious organizations and far-right or far-left politics.
The authors surveyed 377 bettors and 402 non-betting sports fans from 47 states and explored differences between bettors and non-bettors in states with legal gambling and states where gambling is banned. They also asked about narcissism, which past research has found “is associated to gambling behavior especially as it relates to risky behavior such as participating in illegal gambling,” the authors write. Bettors in the sample were 81% male, compared with 69% of non-bettors. Among bettors, 64% were white and 27% were Black, while 77% of non-bettors were white and 17% were Black.
The findings: In legal gambling states, bettors felt more self-worth than non-bettors, though in states where gambling is illegal the difference in self-worth was almost nil. In legal gambling states, bettors reported a stronger personal identity, “or the importance with which an individual identifies with their relationship and career,” than non-bettors. This relationship flipped in illegal gambling states, with non-bettors showing a stronger personal identity than bettors. In both illegal and legal gambling states, bettors reported slightly higher levels of social uselessness — “an individual’s perceived lack of worth related to social institutions” — than non-bettors, though the gap was wider in illegal gambling states.
The authors write: “Bettors look different and come from different backgrounds and locations. Psychographically, they were clearly more narcissistic. They also indicated a higher social identity and self-worth, yet perceived themselves as less worthy members of important social institutions. In general, sports bettors out consumed non-bettors as it relates sports spectatorship.”
Game Changing Innovation or Bad Beat? How Sports Betting Can Reduce Fan Engagement
Ashley Stadler Blank, Katherine Loveland, David Houghton. Journal of Business Research, June 2021.
The study: Legal sports betting means more than $4 billion in additional yearly revenue across the four major sports leagues, according to research the authors cite from the American Gaming Association. At the same time, there may be drawbacks that come with the financial windfall. The authors conduct two studies to explore how sports betting affects fan engagement — the emotional connection fans have with their favorite teams.
The first study included 325 people recruited from Mechanical Turk and focused on betting on a team to win, also called moneyline betting. The second was among 167 Mechanical Turk-recruited participants and focused on prop, or “proposition” bets. Prop bets are bets made on the outcome of some action during the game — whether the next foul ball is caught, missed or goes into the stands, for example. The study is among the first to explore whether there are negative emotional responses from fans related to sports betting.
Participants read a scenario — they were to imagine watching a Major League Baseball game, then randomly they were told they placed either no bet on the game or one of several types of bets. These bets included a $20 bet for the home team to win, along with prop bets. Gaming experts, according to the authors, contend that prop bets can potentially keep fans engaged even if the outcome of the game is obvious — if a team is up by 10 runs by the middle innings, for example. In each study, the participants were asked questions to gauge their emotional investment before and after being told the outcome of the game and their bets. Questions broadly asked about team loyalty, feelings of connectedness to the team and the likelihood participants would watch the team or attend a game, along with other measures of fan engagement.
The findings: In the short run, immediately after a game, the study indicates that betting and losing can decrease fan engagement. Participants who placed no bet were more likely to exhibit loyalty and purchase team-branded merchandise when the team lost, compared with those who placed a moneyline bet. Those who won a prop bet were slightly more likely to be engaged with the team than those who did not bet — but those who lost a prop bet were much less engaged than those who did not bet.
The authors write: “Although industry experts expect sports betting to increase fan engagement, results from two studies do not support this expectation. Instead, we find that when fans lose a bet, positive emotions and subsequent fan engagement decrease.”
College Football Referee Bias and Sports Betting Impact
Rhett Brymer, Ryan Rodenberg, Huimiao Zheng and Tim Holcomb. Eastern Economic Journal, January 2021.
The study: The authors explore whether betting lines are related to bias in officiating in the six major Division I college football conferences across 6,598 games from 2005 to 2012. Betting lines indicate whether a sportsbook thinks a game will be close, will favor one team or the other, or be a blowout. The authors note that “college football and basketball are the only major U.S. sports in which conferences have primary managerial responsibility for officials.” If there is a game late in the season with an undefeated team playing a middling team, the conference will benefit financially if the undefeated team wins and goes on to play in a high-profile bowl game. “Referees, as employees of the conferences, are theoretically more likely to have implicit bias favoring the team with higher revenue potential,” the authors write. They use penalty yards per game as a proxy for whether an officiating crew exhibits bias toward one team or the other.
The findings: The authors find signs of bias during in-conference games in two conferences: the Atlantic Coast Conference and the Big East, which reorganized in 2013 and no longer sponsors football. In-conference games are those where two teams from the same conference play each other. In those ACC games where there one team was favored to win by three touchdowns or more, the authors find officials call 6.5 more penalty yards per game against the favorite. In the Big East, the penalty yards increase to 5.7 for the heavy favorite. Further, ACC officials appeared to flag fewer penalty yards against teams that had been in the league longer and enjoyed historic success, rather than newer teams enjoying more recent success. The authors found no officiating bias when an out-of-conference opponent was heavily favored.
The authors write: “… with increasing state regulation, there will likely be more scrutiny of officiating given that a wider spectrum of consumers will have a financial interest in game outcomes. Increased fan engagement via legal sports wagering highlights the importance of pinpointing evidence of bias and undertaking measures to ensure unbiased officiating and game integrity.”
Legalized Sports Betting, VLT Gambling, and State Gambling Revenues: Evidence from West Virginia
Brad Humphreys. Eastern Economic Journal, January 2021.
The study: In one of the only studies to examine state-level sports betting revenue after the 2018 Supreme Court ruling, Humphreys looks at sports betting tax revenues in West Virginia and whether gamblers shifted their wagering from video lottery terminal games in casinos to sports betting.
The findings: From September to December 2018, casinos in West Virginia introduced five new sportsbooks, one at each of its licensed casinos. The year before, the state saw a windfall of $253 million in tax revenue from video lottery games. In the year after sports betting was introduced, the author estimates $45.4 million in lost video lottery revenue, with new sports betting revenue pegged at only $2.6 million. The state taxes video lottery revenues at 53.5%, while sports betting revenues are taxed at 10%.
The author writes: “These results should give state policy makers considering legalization of sports betting pause. While new revenue streams from legalized sports betting appear attractive on the surface, states already generate substantial tax revenues from gambling, and the introduction of sports betting to this mix does not leave spending on other forms of gambling untouched.”
Sports Betting’s Impact on Casino Gambling: Cannibalization or Expansion?
Ernest Goss and Peyton Miller. University of Illinois Law Review, October 2021.
The study: Another one of few papers to examine how tax revenues and the games bettors played changed after the 2018 ruling, the authors analyze what happened after Iowa allowed sports gambling after August 2019. Iowa casinos that offer sportsbooks pay 6.75% of their sports betting revenue to the state, “a rate tied with Nevada for the lowest nationally,” the authors write. Like in West Virginia, taxes on all other forms of casino gambling are much higher — 22% on revenue over $3 million. The authors do not look at the specific effects of sports betting on other types of gambling, but rather whether there were any changes in overall revenues after August 2019.
The findings: Mobile sports betting and sports betting in casinos did not affect statewide gambling revenues from August 2019 to March 2020. After March, casinos shuttered due to the COVID-19 pandemic.
The authors write: “While these results do not indicate cannibalization within the Iowa gambling market, there are relevant implications for both casinos and the state. Conditions within the state of Iowa may limit the applicability to other states. For example, the varying tax brackets across gambling forms differ from casino taxing in other states.”
Frameworks of Gambling Harms: A Comparative Review and Synthesis
Virve Marionneau, Michael Egerer and Susanna Raisamo. Addiction Research and Theory, August 2022.
The study: The authors gather and analyze “harm frameworks” related to problem gambling. A framework in this context refers to a way of categorizing and thinking about an issue with an ultimate goal of understanding the issue in a comprehensive way and finding solutions. A harm is simply an outcome that most of society would classify as negative — losing one’s house, for example, because of gambling-related losses.
While not specifically related to sports betting, the frameworks explored in the paper are useful for those who want to better understand what can happen to individuals and families affected by problem gambling. After searching major academic research databases, the authors settled on seven papers published between 2000 and 2021 that developed an original harm framework related to problem gambling — four of the papers focused on developing the same framework, leaving four frameworks total. The authors, while applauding the research that has already been done, note that further research is needed.
The findings: Two of the frameworks discussed problem gambling harms related to the workplace and personal relationships. One framework separated psychological and cultural harms, and harms related to crime. Another framework mostly focused on risk factors related to problem gambling, risks which “also occur on the individual, familial, community, and societal levels,” the authors write. They note none of the models explore the degree to which problem gambling harms individuals, families, communities and society — all the harms or risks were “treated as somewhat equal,” they write. Financial harms, they argue, might be a relatively worse harm since they “can be seen to precede or even cause many of the other harms, including criminal acts or emotional suffering.” The authors argue for more research on social harms, where, on the whole, the existence of high levels of problem gambling, “can cause harms irrespective of individual participation, including corruption, economic substitution, match fixing, environmental damage related to tourism, or animal suffering.”
The authors write: “We have found that while existing conceptualizations include a wide definition of harms, most harm items are still seen to stem from individual engagement with gambling. Further incorporation of social and societal harms is still needed to conceptualize and operationalize gambling as a public health issue. This includes the development of societal-level harm measurement and harm minimization.”
A brief history of U.S. sports betting
Americans have a long tradition of gambling. College of the Holy Cross economist Victor Matheson recounts in a January 2021 article in the Eastern Economics Journal:
“Lotteries funded activities such as the original European settlement at Jamestown, the operations of prestigious universities such as Harvard and Princeton, and construction of historic Faneuil Hall in Boston … In the sports realm, by 1900 betting on horse races was made illegal except in Kentucky and Maryland, states that to this day host two of the three Triple Crown events in American horseracing, the Kentucky Derby and the Preakness Stakes. States began to relegalize gambling on horse racing in the 1930s as a method of economic stimulus during the Great Depression.”
By the early 1960s, illegal gambling enterprises run by organized crime groups were worth a combined $7 billion. For more than 30 years, the Wire Act, enacted in September 1961, was the only federal law that addressed sports gambling. The law prohibits the use of a wire — a phone, or, more recently, the internet — to transmit information about placing sports bets across state lines.
The Indian Gaming Regulatory Act, which became federal law in 1988, allowed federally recognized Native American tribes to operate casinos on their land. Sports betting in tribal-run casinos, however, was not allowed unless a tribal-state compact was signed. This is the root of the current legal dispute in Florida. Such compacts were in effect in 22 states as of June 2021, according to the International Center for Gaming Regulation at the University of Nevada, Las Vegas.
By the early 1990s, federal legislators were expressing moral panic over the possibility of states allowing sports betting within their borders, to take advantage of billions being wagered illegally.
Illegal transactions are, by nature, difficult to track. People who bet illegally and their bookies do not typically share receipts with the government or trade groups, so it is difficult to say with precision how big the illegal gambling market was before 2018.
Noting that caveat, the American Gaming Association estimated illegal sports betting as a $150 billion-a-year business before the 2018 Supreme Court ruling. It is an oft-repeated figure in news stories and on websites devoted to sports betting.
In 1991, when overall illegal sports bets were estimated in the tens of billions, a Senate report declared sports gambling a “national problem.” The report continued:
“The harms it inflicts are felt beyond the borders of those states that sanction it. The moral erosion it produces cannot be limited geographically. Once a state legalizes sports gambling, it will be extremely difficult for other States to resist the lure. The current pressures in such places as New Jersey and Florida to institute casino-style sports gambling illustrate the point. Without federal legislation, sports gambling is likely to spread on a piecemeal basis and ultimately develop an irreversible momentum.”
Professional sports league commissioners and former athletes were publicly and adamantly against legal sports betting. They objected that sports integrity would be irreparably harmed, including the possibility of fixed games.
Gary Bettman, the top lawyer for the National Basketball Association, made clear to federal lawmakers in 1990 that sports betting was at odds with the league’s profit motive: “Bettors do not care about the win of their team,” Bettman said during a Senate committee hearing. “They only care about the spread being covered and winning their bets. That is not our product. That is not the product we are selling.”
President George H. Bush signed the Professional and Amateur Sports Protection Act on Oct. 28, 1992. It went into effect on Jan. 1, 1993. Bettman became commissioner of the National Hockey League a month later — and, eventually, a fan of sports betting.
“What we’ve learned is that [sports gambling] is another point of engagement for the fans,” Bettman said during a 2019 American Gaming Association conference. “Ultimately, I think if you’re interested in sports betting, you’re going to have an increased opportunity to engage with the game.”
After 1992, some limited sports betting was grandfathered in Delaware, Oregon and Montana. Delaware, for example, allowed a certain type of bets on National Football League games. States were given one year to legalize casino sports betting after the federal law went into effect, but none did. Nevada was the only grandfathered state that fully allowed sports betting. For nearly three decades, the 1992 federal legislation enshrined Las Vegas as the U.S. sports betting hub.
“[Legal] betting was pretty much happening in Nevada, in a regulated market, and you’d have to be at casino to do it,” says Holden, who wrote a comprehensive overview of the rise of legal sports betting published February 2019 in the Georgia State University Law Review. “That gave us sort of the image of sportsbook-style betting that you would see in the movies, you would see on TV. You go to the counter, you place a bet and you watch the game on 50 different screens.”
Constitutional cracks emerged in the 2010s. In 2014, New Jersey legislators voted to reverse their law banning sports betting there. The National Collegiate Athletic Association brought the state to court. This was the case the Supreme Court heard years later, leading to the fall of the Professional and Amateur Sports Protection Act.
Major sports leagues today are on board with gambling. It is impossible to watch professional sports without encountering advertisements encouraging betting. Online sportsbooks spend $154 million yearly in local TV spots, according to Nielsen. Aside from accepting ad dollars from sportsbooks, every major sports league and numerous individual teams have lucrative partnership deals with sportsbooks.
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