When Sports Betting Becomes Legal
On Sunday night of October 3, 2021, 28.5 million Americans and over one-third of televisions in the United States tuned in to watch the most anticipated game of the 2021 NFL regular season: Tom Brady’s return to Foxboro MA, to take on his former New England Patriots. (NBC 2021). While the sheer number of viewers is impressive, the amount of money wagered on the game’s outcome is even more astounding. According to sports books like DraftKings and BetMGM, the Patriots-Buccaneers matchup was the largest wagered NFL regular-season game “by far” in the companies’ histories and narrowly lost out to Super Bowl LV, which totaled $4.3 billion in wagers. Given the current climate of sports betting and its continued legalization in the United States, these numbers are far from surprising and are only going to increase in the coming years. This projected increase will not just affect companies like DraftKings and BetMGM, but the U.S. economy as a whole. The legalization of sports betting presents the opportunity for major economic growth through job creation, increased firm profit, and contributions toward both tax revenue and U.S. gross domestic product. Along with that, due to incentives from sports books and economic issues at the state level stemming from the pandemic, the legalization process will be expedited, thereby reaching these economic projections sooner rather than later.
Sports betting has been a controversial topic in the United States since its inception almost a century ago. In 1992, the Professional and Amateur Sports Protection Act (PAPSA) made the business of bookmaking illegal in all but a few states, with Nevada being the most notable state left out. The main reasons for introducing this act were major scandals involving players and managers betting on or purposely throwing games. An example of a scandal that garnered national attention pre-PAPSA was the fixing of Boston College men’s basketball games during the 1978-79 season. As covered in ESPN’s “30 for 30” documentary, Playing for the Mob, an infamous mobster named Henry Hill convinced a few starting players at BC to purposely lose games or only win them by less than the lines had been set at. For example, if sports books had BC beating their opponent by 9 points or more, the players would purposely make mistakes to only win by a few points, and be compensated for a percentage of the profits that Hill made betting in favor of the opposing team (ESPN 2014). This scandal, among others, ruined the integrity of both players and sports games, bringing on heavy public criticism. U.S. Senator and former NBA player at the time, Bill Bradley, stated in an article: “If the dangers of state-sponsored sports betting are not confronted, the character of sports and youngsters' view of them could be seriously threatened.” (ESPN 2018). Despite the act being put into place, sports betting continued to be a profitable industry. Sports bettors and bookies flocked to the black market to continue wagering on sporting events, just as those in the alcohol market had done during the Prohibition era. This market thrived for over twenty-six years, generating an estimated $150 billion in bets annually (ESPN 2018). “For years, [politicians and professional sports leaders argued that] online sports betting sites offered on offshore portals have robbed the U.S. economy and its businesses of vital income.” (EconoTimes 2020). Ultimately, on May 14, 2018, the Supreme Court voted to strike down PAPSA and leave regulation up to states. Currently, twenty-eight states have fully legalized sports betting, with six more states in the process of rolling out operational sports wagering in the coming months (Figure 1). Just over three years since states began to legalize sports betting, economic benefits are already evident, starting with job creation.
The shift from offshore accounts to regulated sports books will promote an influx of job opportunities. According to a study conducted by Oxford Economics, the direct employment impact of legalized betting in the US, representing employment in sports betting operations, is expected to total 86,819 jobs. Additionally, 129,852 indirect and induced jobs are expected to be supported, resulting in a total employment impact of 216,671 jobs (Oxford Economics 2017, 24). These job opportunities would include both low-skilled and high-skilled jobs, with a wide variety of expertise and skills needed. For example, sports betting legalization would directly create lower-skilled customer service jobs and higher-skilled analytics and software engineering jobs. Along with jobs directly related to sports betting, job creation would also be seen in adjacent industries such as sports media or the bar/restaurant industry as sports betting operations are expected to support $4.0 billion of direct labor income (e.g. wages, salaries, benefits and tips), and $7.0 billion of indirect labor income, representing $11.0 billion of total labor income (Oxford Economics 2017, 21). While the increase in direct labor and income is somewhat expected, the jobs and revenue generated from indirect areas, specifically surrounding the sports media industry, will not only stimulate the economy further but will increase sports betting popularity as well.
Amidst a period where the traditional sports television industry was losing out to streaming services and the increased reliance on mobile phones, the striking down of PAPSA in 2018 offered many major sports media companies, like Barstool Sports and NESN, a lifeline moving forward. Predictions were made that the legalization of sports betting would increase the viewership for live sporting events that might not otherwise be a big spectacle. These predictions were correct according to a Nielsen Sports study, which found that sports bettors made up 25 percent of the NFL’s television audience in 2015 but accounted for 47 percent of all minutes viewed. Sports bettors watch about twice as much sports coverage as non-bettors do. So it stands to reason that making it easier for people to become sports bettors will make them more likely to watch sports (Draper 2018). Sports media conglomerates like ESPN and FOX Sports are taking advantage of this increased viewership, creating premium services requiring a monthly subscription in order to watch live, non-mainstream sporting events. Along with that, these companies are also adding gambling-specific content to their scheduled programming. For example, FOX launched the show “Lock it In,” which airs daily and consists of experts discussing their bets for the sporting events later that night. ESPN launched their version, “The Daily Wager,” shortly after and both have been highly successful. Ultimately, the legalization and increased popularity of sports betting has allowed these firms to further their profits while increasing gross domestic product in the U.S. economy.
GDP is the main indicator of growth in an economy, so a vast increase would benefit the country as a whole. Sports betting is expected to increase U.S. GDP by $22.4 billion (Oxford Economics 2017, 5). On top of that, fiscal impacts consisting of state and local taxes, are expected to total $8.4 billion. States are able to set their own tax rates and receive that percentage of the sports books’ revenue accrued in their respective state. For example, the four current most popular sports betting states are New Jersey, Nevada, Illinois, and Pennsylvania. The average of these four states’ tax rate is 17.6 percent. At that rate, $25 million of adjusted revenue raises $4.4 million in state tax revenue. As statewide legalization increases, more tax revenue will be generated and used for the benefit of state and local governments.
The desire for higher tax revenue from states only encourages the legalization of sports betting, and is the ultimate reason why many states opted in favor of it. The Covid-19 pandemic has only increased the need for tax revenue, leading many in the sports betting industry to believe that legislation might speed up. In May 2020 on an episode of Power Lunch, Penn National Gaming CEO Jay Snowden told CNBC that the economic consequences of the coronavirus could speed up the adoption of legalized sports betting. With revenues falling off for many states, numerous discussions and steps toward legislation have been taken by states who previously stated no desire to legalize sports betting (CNBC 2020). The pandemic also promoted the use of online or mobile sport betting, as many sports books were closed off during football and basketball season (Figure 2). Sports books are taking advantage of technological advancements and creating mobile sports betting apps that allow for an extensive range of sports and props. They are also offering promos to join with initial deposits, and discounted odds to draw consumers in from offshore accounts, which is helping increase revenues that will now be reflected in U.S. GDP.
As long as the necessary measures are taken to both maintain the integrity of sport and prevent serious negative social impacts, the future of sports betting will be long and lucrative. Job creation will continue to steadily increase as new skills and roles are needed. Inside the industry, heavyweight firms like FanDuel, DraftKings and BetMGM will continue to expand, while up-and-coming firms like Barstool Sports and PointsBet will look to offer unique products and differentiate themselves from the giants. Outside of it, sports media conglomerates will look to continue seeking profits with new programs or promotions, while independent creators will jump at the opportunity to generate revenue off of social media content or by selling their picks. This push for growth and the possibility of exponential tax revenue increases will encourage governments to legalize and then expand their statewide reach. This vast opportunity for economic growth currently makes the sports betting market a very intriguing one, and one that will definitely be worth keeping an eye on moving forward.
References
Boesen, Ulrik. “States Positioned for a Super Bowl Win with New Taxes on Sports Betting.” Tax Foundation, Tax Foundation, 4 Feb. 2021, https://taxfoundation.org/super-bowl-sports-betting-taxes/.
Draper, Kevin. “How Betting Will Change the Sports Media Business.” The New York Times, The New York Times, 15 May 2018, https://www.nytimes.com/2018/05/15/sports/sports-betting.html.
Stankiewicz, Kevin. Need for Tax Revenue May Speed Up Sports Betting Legalization. Power Lunch, CNBC, 7 May 2020, https://www.cnbc.com/2020/05/07/penn-national-gaming-ceo-coronavirus-may-speed-up-sports-betting-legalization.html.
Economics, Oxford. “Economic Impact of Legalized Sports Betting.” Economic Impact of Legalized Sports Betting, American Gaming Association, https://www.americangaming.org/wp-content/uploads/2019/02/AGA-Oxford-Sports-betting-impacts-2017-May_FINAL-report.pdf.
EconoTimes. “The Economic Impact of Online Sports Betting in the USA.” EconoTimes, Elmin Media LLC, 23 Jan. 2020, https://www.econotimes.com/The-Economic-Impact-of-Online-Sports-Betting-in-the-USA-1572928.
Purdum, David. “Sports Betting Legalization: How We Got Here.” ESPN, ESPN Internet Ventures, 21 May 2018, https://www.espn.com/chalk/story/_/id/23561576/chalk-line-how-got-legalized-sports-betting.