Photo illustration by Elizabeth Ciano // Stacker // Shutterstock

Rolling the dice: How tax revenue from sports betting affects states in the USA

Collage of a football player running to catch a red dice with a hundred dollar bill in the background.

The American sports betting boom is a freight train racing along its tracks. Despite increasing calls for regulation, there are no signs of slowing down as the states involved in the business continue to rake in absurd amounts of money. As revenues rise, so do tax revenues.

According to the American Gaming Association, gamblers wagered a record $36.86 billion on sports betting in the first quarter of 2024, generating $3.33 billion in revenue—and $804.5 million in tax revenue. Sports betting giant New York tops the list, generating nearly five times as much revenue as Pennsylvania in the first three months of the year, coming in at No. 2. The Empire State also has the third-highest percentage of sports betting tax revenue as a percentage of total tax revenue, at 0.7%. That’s largely thanks to its 51% tax rate on online sports betting, which is tied with New Hampshire’s and the highest in the country.

In response to these and similar success stories, other states are considering raising their tax rates. Ohio, for example, doubled its levy to 20 percent, and New Jersey and Illinois are considering raising their levies from 13 percent and 15 percent to 30 percent and 35 percent, respectively.

It may be a race for the money, but not all locations are successful. When another state takes a piece of the pie, neighboring markets often fall by the wayside. These newcomers – including previously untapped Maryland and Massachusetts – have pushed Delaware, Maine and Rhode Island off the table.

Maine has another problem that some would call unique: Its market is probably the most heavily regulated in the country. Advertising featuring celebrities, professional athletes or Olympians is prohibited, and there are many other restrictions, including those designed to limit the involvement of young people. Two bookmakers offer online sports betting in the state, but there is no in-person betting.

Of course, bookmakers want to make as much money as possible. When faced with unfavorable conditions, such as high tax rates or strict regulations, they say they pass the costs on to customers by increasing odds or withdrawing promotions.

To see how these different scenarios play out across the country, ATS.io mapped sports betting tax revenue using data from the Census Bureau.

ATS.io

Sports betting taxes in U.S. states increased by nearly 30% from the first quarter of 2023

Heatmap showing sports betting tax revenue per capita in the United States in Q1 2024.

In the first quarter of 2023, tax revenue from sports betting in the United States amounted to $619 million, or 0.18% of the country’s total tax revenue. The former figure increased by 30% in 2024 – even without much participation from the three most populous states: California, Texas and Florida. The first two are among the states where parimutuel or pool betting is legal, but sports betting has not been fully approved.

As big as that windfall is, it only accounts for 0.23 percent of tax revenue in the U.S. Only in Montana does tax revenue from sports betting exceed 1 percent of tax revenue. Still, states can do new things with the extra money. Colorado, for example, is funding water conservation efforts, taking the profits from the vice industry and pocketing them in an underfunded sector in the increasingly arid West. But the move is making some lawmakers think twice. “How can I justify in my head favoring society with the secret passions of others that may permanently affect their lives?” state Sen. Cleave Simpson, co-sponsor of a bill that would decouple that revenue stream, told the Washington Post.

Sure, the rise of sports betting in the U.S. was predictable, but lawmakers apparently saw dollar signs instead of a corresponding increase in problem gamblers. The issue and its most high-profile victims have made headlines around the world, in part because sports leagues have tried to curry favor with bookmakers for a cut.

A scandal dogged perhaps Major League Baseball’s best player, Shohei Ohtani, before this season. He was cleared of any wrongdoing, but his interpreter and friend Ippei Mizuhara was charged with bank and tax fraud and could spend 33 years in federal prison after stealing nearly $17 million from the superstar to help him pay off $40.7 million in gambling debts. The situation highlights the risks associated with legalized sports betting, the biggest of which is addiction. One survey found that nearly half (45%) of 18- to 34-year-olds have bet more than they should with an online sportsbook.

Even though tax revenue from sports betting represents a tiny percentage of government budgets, sports betting stimulates the economy and feeds the unhealthy appetites of gambling addicts. Advocates are calling on governments and industry leaders to address a gambling problem that is putting millions of people at risk while undermining sports betting’s growth trend. That could mean a larger share of that revenue – the default figure is 1% – needs to go toward addiction support.

Story editing by Carren Jao. Additional editing by Kelly Glass. Proofreading by Paris Close.

This story originally appeared on ATS.io and was produced and distributed in partnership with Stacker Studio.