Just over a year ago, the United States Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA), a federal law that prevented states from legalizing sports gambling. As a result, state lawmakers were released to decide whether sports betting would be legal in their respective states. Regardless of whether people support legal sports gaming, the Supreme Court’s decision was a clear victory for the principle of federalism.
Many states, both red and blue, have reacted to this ruling by enacting laws to permit sports betting, including Mississippi, West Virginia, New Jersey, and Rhode Island, just to name a few examples. Since 2018, 43 states and the District of Columbia have passed or have considered legislation to legalize sports betting. In 2019 alone, five states have enacted laws legalizing sports betting. Two other states, New Hampshire and Maine, passed bills this year, but New Hampshire Gov. Chris Sununu and Maine Gov. Janet Mills have yet to sign those bills into law.
In other states, such measures have faced strong opposition, based on the concern that sports betting will create more gambling addicts. In Louisiana, where there is already legal casino gambling, efforts to follow the lead of both Arkansas and Mississippi by legalizing sports gambling have failed.
More than $9 billion has been wagered on sports in legal markets in the year since the federal ban was struck down. This legal activity has generated more than $65 million so far in tax revenue at the state and local level. Of course, states do run the risk of overtaxing the newly legalized business model. For instance, states like Delaware and Rhode Island — no strangers to high tax burdens — tax winnings at a roughly 50% rate.
One point of legalizing sports gambling is to eliminate the black market. This is where overtaxation of gambling revenue can become a problem. Sara Slane, a senior vice president at the American Gaming Association, testified last year before the U.S. House of Representatives Subcommittee on Crime, Terrorism, Homeland Security, and Investigations, that in order to shrink the illegal market, policies must allow the industry to compete with illegal operators. Only when the illegal market shrinks can the economy to feel the full positive effects of legalized sports betting.
States have recognized the significant impact that addiction can have on individuals, families, and communities. This is why, in nearly every state, legislative measures mandate that a certain percentage of the tax revenue from legal sports betting will go toward a fund that provides for treatment of gambling addiction. Such funds specifically provide rehabilitation and treatment for those who suffer from addiction. In tandem, every state has passed criminal justice legislation that expands access to treatment programs for drug and alcohol addiction. These states, such as Texas, South Carolina, and Georgia, have seen their rates of both crime and addiction drop as a result of these programs.
In some states, the legalization of sports gambling will be extraordinarily difficult. For example, Utah’s constitution explicitly prevents gambling of any sort. This has been the state’s position for decades and is unlikely to change. However, as other states see the budgetary and public safety benefits derived by neighboring states that have legalized sports gambling, they may choose to follow suit. Over the next few years, states will likely continue to consider and enact measures that legalize sports betting. That’s as sure a bet as Zion Williamson starting for the New Orleans Pelicans next season or Drew Brees being inducted into the Pro Football Hall of Fame after he retires.
Ronald J. Lampard is the Criminal Justice Task Force Director at the American Legislative Exchange Council. He can be reached at [email protected]. Jonathan Williams is the chief economist at the American Legislative Exchange Council and vice president of its Center for State Fiscal Reform. Follow him on Twitter @taxeconomist.
