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Don’t Bet On It

eye on the news

Don’t Bet On It

Legalized gambling won’t fix state budgets—but it will take a toll on the economy and society. May 15, 2018
Economy, finance, and budgets

The Supreme Court has opened the floodgates to sports betting by overturning a federal law restricting legal betting on games. More than a dozen states are likely to join New Jersey, which brought the suit challenging the1992 federal law, in instituting legalized betting on the NFL, NBA, and other leagues. Other states, under pressure to balance their budgets without raising taxes, will surely follow.

Don’t bet, however, that this is good news for taxpayers. Since states began instituting lotteries six decades ago, legalized gambling has spread throughout the United States. Advocates have often touted gambling as a magic bullet to generate revenues, but it hasn’t delivered. And there’s plenty of evidence that it does harm—to people and to the greater economy.

The rationale for legalized gambling is that people do it anyway, so why not tax it? Research suggests, however, that legal gambling is not so innocuous. A groundbreaking 2002 study of states with lotteries, for instance, found that household spending declined by as much as was bet on the lottery during the first year after a state instituted a game. “Spending on lottery tickets is financed completely by a reduction in non-gaming expenditures,” the study concluded. In other words, legal gambling largely siphons spending from other areas of the economy.

Nor is gambling a budget fix. New Jersey introduced lottery and casino gambling in the 1970s, selling them as a way to fund public services without raising taxes. Today, however, Jersey residents bear one of the nation’s highest tax burdens, and the state persistently has trouble paying its bills. Gambling revenues did nothing to deter either of those outcomes. But Jersey is not alone. “Sold to the electorate on the grounds that they will reduce taxes or provide better services, lotteries do neither,” observed a 1994 study of states that instituted legal gambling.

In the wake of yesterday’s ruling, politicians and industry experts have been quick to predict that Americans will soon be betting fantastic sums through legal sports books. But for decades, elected officials and advocates have promoted legal gambling by overstating what it will bring to state coffers. A 2012 analysis by Stateline found that states that had legalized one form or another of gambling in the past decade had consistently failed to achieve the fiscal projections trotted out during legalization debates. New Jersey, which instituted online casino gambling within its borders several years ago, predicted that bettors would wager about $1 billion in the first year. Instead, new online games generated about one-tenth that amount.

Even when legalized betting underperforms, however, the revenues that it generates are easier to calculate than the costs to society and the economy. The dirty secret of legal betting, for instance, is that much of it is targeted at persistent, problem users. Surveys of legal gamblers in Louisiana, Montana, and Ontario, Canada, have found that problem gamblers make up as much as 20 percent of bettors on state lotteries and up to 40 percent of casino gambling. Just what that costs society is hard to estimate, though a 2015 report by researchers at Rutgers University estimated that New Jersey had about 190,000 problem gamblers, and that they can cost the economy up to $1,700 a year each in lost productivity, health-care expenditures, and increased levels of crime. And the 1999 federally funded Gambling Impact Behavior Study estimated that a shocking one-quarter of problem gamblers file for bankruptcy.

 Scientific studies of how the brain works have reshaped gaming, making state-sponsored games more addictive. When players started losing interest in weekly lottery games, states switched to scratch-off formats, which, research suggested, would be more likely to reignite interest because they provided instant gratification. Some critics call instant games the “crack cocaine” of lotteries. Similarly, fantasy sports betting took off when operators ditched the traditional format, in which players competed against one another in leagues that lasted a whole season, and transitioned to instant games that take place over the course of a single day or weekend. That was a calculated move, based on research on how to attract and keep bettors. Sports betting may take us further down these paths, especially since it has such appeal to young men. Early research suggests that teens who start betting on fantasy sports are far more likely to graduate to other forms of sports betting and more likely to develop gambling problems than the average teenager.

Two things seem certain about Jersey’s victory at the high court: new gaming revenues won’t make a dent in the state’s budget problems, and the spread of sports betting will exact a heavy toll on some players, who will find it easy to get a bet down—but hard to stop. The poet of bettors, Damon Runyon, once wrote, “I came to the conclusion long ago that all life is six to five against.” Those odds just got worse.

Photo: CatLane/iStock

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