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The Leaflet: All Bets Are On

June 7, 2018

Delaware became the first state other than Nevada to legalize sports betting. Other states are sure to follow, as there is potential for states to collect $20 billion in new tax revenue.

On June 5, Delaware became the first state to offer sports betting in the wake of the U.S. Supreme Court’s recent declaration that the 1992 Professional and Amateur Sports Protection Act (PASPA) is unconstitutional. The ruling lifted a near-nationwide ban on sports gambling, thus allowing states the freedom to authorize sports betting. Before the recent reversal, Nevada was the only state with legalized sports wagering. (Delaware, Montana, and Oregon could permit limited sports betting.)

More states are likely to follow Delaware’s lead because sports gambling would generate additional tax revenue. A recent Oxford Economics study estimated that if most states legalize sports gambling with a moderate tax rate and sensible regulations, states could collect $20 billion in new tax revenue and produce more than $40 billion in new economic output.

Despite the passage of PASPA, the American Gaming Association estimates at least $150 billion per year is illegally gambled on sports in the United States, making it the country’s most popular form of gambling. Given that 44 states and the District of Columbia already allow for state lotteries and 24 states allow gambling at casinos, it is clear that many state legislators do not want to miss out on the tax revenue generated by voluntary gambling—revenue that can be used to shore up state budget deficits and finance public services and institutions.

In authorizing sports betting, states ought to ensure sports gambling regulations are not burdensome and that taxes and licensing fees are not too overbearing. To promote a competitive, flourishing legal market for sports betting, Michelle Minton of the Competitive Enterprise Institute outlined in “Legalizing Sports Betting in the United States” five features that sports gambling rules should have: adequate license availability, reasonable tax rates, diverse product offerings, robust consumer protections, and regulatory cooperation. Minton’s proposed features would dramatically help reduce black market activity and, by extension, criminal behavior.

Many states began crafting sports betting laws in anticipation of the Supreme Court’s decision. So far, 15 states have introduced bills legalizing sports betting, and four states have passed bills, not yet in effect, legalizing the long-banned activity: Mississippi, New Jersey, Pennsylvania, and West Virginia.

However, some of these states’ bills violate the criteria Minton states are necessary to foster a well-functioning market. For example, New Jersey’s legislation would levy a 17.5 percent tax rate on gross gaming revenue and a $400,000 licensing fee. Even worse, Pennsylvania’s legislature set its proposed tax at 34 percent of gross gaming revenue, coupled with a $10 million licensing fee. Onerous tax rates and oppressive licensing fees would create barriers to entry and obstruct market forces, thereby decreasing the possible benefits of sports gambling. State legislators looking to permit sports betting should avoid them.

The PASPA ruling is an opportunity for Americans to freely engage in a voluntary activity. The decision also reinforces the principle of federalism, transferring power from the national government back to the states, where the practice and scope of gambling should be determined.

 

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Budget & Tax
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The Insanity of Climate Alarmism
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Author
Arianna Wilkerson works in government relations at The Heartland Institute.
awilkerson@heartland.org