The Effects of Sports Betting Legalization on Irresponsible Gambling

Abstract

The legalization of sports betting has increased gambling participation significantly across the U.S., raising concerns about its potential social and financial harms. We use a large panel of individual-level financial data to analyze the impact of sports betting legalization on overall gambling activity and irresponsible gambling behavior. We find that online sports gambling spending increased by 633% following legalization (from $0.69 to $5.06 per individual-month), while the rate of irresponsible gambling – defined as monthly gambling expenditures exceeding 1% of income – rose by 400% (from 0.2% to 1.0% of individuals). Both effects are stable over time after an initial surge in the first month post-legalization. The spending increase is relatively uniform across income levels, but the rate of irresponsible gambling shows significant income-based heterogeneity, with lower-income individuals experiencing much larger increases than higher-income individuals. We also find that while new gambler adoption drives an initial spike in irresponsible gambling, existing gamblers (i.e., individuals who first gambled prior to legalization in their home state) are a larger and more enduring driver of the overall increase in problematic behavior, despite representing just 17.3% of the panel. These income- and behavior-based differences in vulnerability to gambling harms suggest the potential utility of targeted policy interventions, such as opt-in, income-based gambling limits, to mitigate potential adverse effects of legalization while preserving the benefits of a sustainable gambling market.

Keywords: Digitization, Gambling, Generalized Synthetic Control, Online Casino Gaming, Online Sports Betting, Quasi-Experiments