America’s Online Sports Betting Crisis Is Already Here

Earlier this month, The Economist made a bold claim in its December 5, 2024, issue: “America’s gambling boom should be celebrated, not feared.” The British magazine, which traditionally does not identify the authors of its articles, argued that the surge in sports betting and other forms of gambling in recent years was a net positive.

“Americans may wager as much as $630 [billion] online by the end of the decade, quadrupling gambling companies’ revenues from sports-betting and virtual casinos,” it noted. That boom “reflects the fact that it is catching up with the rest of the world” after years of local and national bans. Sports betting in particular is a “communal activity,” The Economist wrote approvingly, one that “invigorates fans” and “enlivens broadcasting.”

“Many people see gambling as a vice that ensnares the poor,” the magazine wrote. “For them, taking a punt is an indicator of economic immiseration, and the loosening of prohibitions is a mistake that must be corrected as soon as possible. In fact, much about today’s gambling boom should be celebrated as an expansion of people’s freedom to lead their lives as they choose.”

The evidence suggests otherwise. Americans are now roughly five or six years into the nation’s experiment with legalized online sports betting, and so far, the results are fairly grim. It is true that a multibillion-dollar industry appeared out of nowhere in the last few years thanks to court rulings and state legislative actions. But there is a growing body of research that suggests this newfound industry is making billions of dollars by creating and exploiting a generation of irresponsible gamblers—with profound economic and social consequences for themselves and everyone else.

If it feels like the sports betting craze emerged practically overnight, that’s because it did. In 1992, Congress enacted the Professional and Amateur Sports Protection Act, or PASPA, to largely ban sports betting across the United States by forbidding state legislatures from legalizing it. Lawmakers sought to head off rumblings for the move amid the rise of American Indian casinos on tribal land. The law grandfathered in Nevada’s sportsbooks and gave New Jersey the opportunity to legalize its own sportsbooks if it acted within one year of the law’s passage. New Jersey lawmakers did not avail themselves of the opportunity.

Two decades later, former New Jersey Governor Chris Christie sought to overturn the federal ban in court. He signed a law to legalize sports betting in New Jersey in 2012, which prompted a lawsuit from the National Collegiate Athletic Association and the four major professional men’s sports leagues to block it. In a 6–3 decision in 2018, the Supreme Court held that Congress had violated the Tenth Amendment by forbidding states from legalizing sports betting under PASPA.

“The legalization of sports gambling requires an important policy choice, but the choice is not ours to make,” Justice Samuel Alito wrote for the court. “Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not. PASPA regulate[s] state governments’ regulation of their citizens. The Constitution gives Congress no such power.”

As Alito noted, his decision did not legalize sports betting in and of itself. With PASPA gone, however, state legislatures leapt at the opportunity to do just that. Thirty states have now legalized sports betting since the high court’s ruling in Murphy v. NCAA, following a well-funded lobbying blitz by gambling companies. The American Gaming Association, an industry trade group, reported that sportsbooks brought in nearly $11 billion in revenue in 2023.

Where is that revenue coming from? Earlier this year, a study by the National Bureau of Economic Research looked at millions of anonymized financial transactions between 2018 and 2023 to evaluate how the emergence of sports betting changed American households’ spending patterns. Their findings suggest that it acts as a significant headwind for Americans’ financial futures.

“The legalization of sports betting has far-reaching consequences for household financial health,” the study found. “It increases credit card balances, reduces available credit, increases lottery play, and decreases net investments in financial markets. These effects are particularly pronounced among financially constrained households.”

The NBER researchers said that they found that nearly 8 percent of households in states where sports betting had been legalized were now participating in it. For them, there was a measurable impact on their financial well-being. The average household that bet on sports saw its contributions to more traditional investments—stocks, bonds, and so on—drop by about 14 percent. For every one dollar spent on sports bets, there was a net reduction of roughly one dollar in long-term investments.

In their attempt to hype the rise of sports betting, The Economist tried to dispute that sports betting is a “vice that ensnares the poor” by pointing to data that showed bettors were “mostly well-off young men,” with one unidentified survey showing that “44 percent of them earn more than $100,000 a year”—roughly twice the national baseline. But this claim contradicts itself: 44 percent of a population is, by definition, less than “most” of it.

The survey cited by The Economist may have also focused too narrowly on how legalization affected household wealth. Other research has found that the effects of online sports betting are concentrated among lower-income gamblers. Researchers at Southern Methodist University looked at anonymized data from more than 700,000 gamblers’ financial records to evaluate how the rise of legalized sports betting affected both irresponsible gambling rates and state tax revenues.

Their study found that 43 percent of gamblers spent more than 1 percent of their income on gambling, a figure used by a Canadian addiction study center to define a safe level of responsible gambling. Almost 9 percent of gamblers spent more than 10 percent of their monthly income on sports bets. When looking at gamblers’ income levels, the researchers also found that lower-income participants were more likely to participate in irresponsible gambling than their counterparts.

Perhaps the striking finding by the SMU team, however, was the confirmation of the oldest data point in the history of gambling: The house always wins. Fewer than 5 percent of the gamblers that its survey tracked withdrew more money than they deposited from online sports betting apps. This is unsurprising, partly because the odds are always tilted in the sportsbook’s favor and partly because sports betting companies go to great lengths to freeze out gamblers with a track record of success. The Wall Street Journal reported in July on how some winning bettors will find themselves unable to place more than a few dollars or even as little as 50 cents in future bets, limiting the sportsbook’s potential losses—and the customer’s potential success.

While sportsbooks suppress the winners, they take extraordinary pains to keep everyone else chasing their losses. This can be particularly dangerous when addiction is a factor. The Athletic profiled an Arizona man who lost more than $110,000 during a 15-month betting spree, which saw him take out multiple loans and contemplate suicide to erase his debts before coming clean to his wife and seeking help. Like many addicts, he hoped that one big win could help erase dozens of smaller losses.

He hated himself. Several times, he tried quitting and would go days without placing a bet. Then his phone would ping. It was his VIP representative from FanDuel with a text message.

Hey Jordan … I just gave you a $200 bonus bet into your account.

Gambling addiction is not a new phenomenon. In states where gambling is legal, casinos have long been required to include disclaimers in their advertising and to fund hotlines for troubled individuals to get help. But the nature of modern technology makes it far easier for people to get addicted in the first place. No longer do they have to drive to a brick-and-mortar location to make a bet or cross state lines to reach a sportsbook; now they can do it on their own couch, prodded by push alerts, bonus bets, relentless advertising, and other cheap tricks.

Since roughly half of the states have legalized sports betting, scholars are able to use the non-legalized states as a control group of sorts to measure its impact in the ones that allow it. A study released this summer by a group of University of California, Los Angeles, and University of Southern California researchers found significant variations in certain benchmarks of financial health in states that legalized sports betting compared to states that haven’t.

“We find that for all states that implemented [legalized sports betting], we observe a small but significant decrease in the average credit score,” the researchers said. “In states that allow online/mobile gambling, the decrease is roughly three times larger, suggesting that legal sports gambling does worsen consumer financial health, especially so when mobile access is allowed.” Perhaps the most alarming effect is on more serious metrics of financial distress: The study found that bankruptcies rose by 28 percent and debt collection amounts increased by 8 percent in states that legalized sports betting.

Part of The Economist’s case for sports betting is a libertarian ethos that sees sports betting as a voluntary choice that only affects those who partake in it. But even people in these states who don’t participate in sports betting may be indirectly affected by legalization. “Interestingly, we find a decrease in credit card delinquencies, and more generally, we find a restriction in access to credit in the form of lower credit limits and a higher ratio of secured to unsecured loans,” the study found. “Each of these indicates that financial institutions may be reducing their risk exposure in states with legal mobile sports gambling.”

The ideal policy outcome here may be to build a time machine and travel back to 2018, when Americans had legal access to sportsbooks so long as they traveled to Nevada to place a bet. That logistical friction deterred all but the most interested and well-funded gamblers; those that opted to press their luck anyway were surrounded by constant reminders that the odds were against them. But there was no popular or grassroots clamor for legalized sports betting before the Supreme Court’s decision in Murphy, even though there appears to be a notable amount of support for it now. In Missouri, for example, voters narrowly approved a constitutional amendment in November that would pave the way for online sports betting in that state.

“The legalization of sports gambling is a controversial subject,” Alito dryly noted in his decision in Murphy, before making a wager of his own. “Supporters argue that legalization will produce revenue for the states and critically weaken illegal sports betting operations, which are often run by organized crime. Opponents contend that legalizing sports gambling will hook the young on gambling, encourage people of modest means to squander their savings and earnings, and corrupt professional and college sports.” So far, the opponents got it right.