UC San Diego study finds both pros and cons to legalized online gambling

The legalization of online gambling increases state revenues but also leads to irresponsible betting, especially among lower-income gamblers, a report from UC San Diego’s Rady School of Management has found.

Since the 2018 U.S. Supreme Court decision that allowed states to legalize sports betting, online gambling markets have expanded significantly, with online gaming reaching a record 29 percent of total commercial gaming revenue in the first quarter of this year.

As the Paris Summer Olympics approaches, researchers believe activity will increase on gaming sites such as DraftKings and FanDuel. A total of 16 states have launched legal sports betting markets in the three years since the 2021 Tokyo games.

“Our data show that online gambling legalization leads to more irresponsible gambling spending among lower-income consumers than among higher-income gamblers,” said Kenneth 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 — for example, 10 percent — on gambling.”

California does not allow online sports betting. However, 30 states currently permit online sports betting, with seven of them also allowing online casino gaming. The paper’s authors looked at data from 32 states over five years — comparing 18 states that changed online gambling policies to 14 that did not.

What they found was that the house (nearly) always wins.

“Of the more than 700,000 gamblers that we studied, 96 percent appeared to lose money to online gambling,” Wilbur said. “Only 4 percent made money from online betting. That is by design. Online gambling platforms often ban or throttle frequent winners’ accounts. There is no right to gamble.”

For around 250,000 of those studied, the Rady School researchers could analyze gambling as a percentage of income through direct deposit data.

Canada advises gamblers to spend less than 1 percent of monthly income on gambling. However, the data revealed that 43 percent of gamblers studied exceeded 1 percent of income in gambling months, with 5 percent spending more than 10 percent of their income on gambling and 3 percent spending more than 15 percent of their monthly pay.

“These findings emphasize the high financial risk associated with online gambling,” Wilbur said.

The researchers seek to provide the data to state legislatures as some — such as New York and Illinois — consider expanding legalized gambling.

Study authors found gambling helpline calls did increase as gambling became legal in the 14 states analyzed, most notably in New York; however, suicides did not increase.

The authors write that suicide data from the U.S. Centers for Disease Control, while informative, has limitations in measuring gambling-related suicides. State coroners generally do not document gambling as a contributing factor in suicide records, likely because they do not observe decedents’ gambling activity.

Ultimately, the authors conclude that legalized gambling has both pros and cons.

“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 write. “On the downside, increased accessibility and participation can lead to higher rates of problematic gambling behavior.”

Originally Published: July 23, 2024 at 4:31 p.m.