The legal sports betting industry has come under attack of late. Covers senior news analysts Ryan Butler and Geoff Zochodne separate fact from fiction when it comes to the impact legalized sports betting has on the general public.
Part I – Negative Effects of Gambling Legalization Overblown
Part II – The Average American Sports Bettor Gambles Infrequently
Part III – Perception (Tuesday)
Part IV – Regulation (Wednesday)
Part V – Integrity (Thursday)
Part VI – Wish List (Friday)
Addressing The “Horseshoe”
Research shows that while sports betting is already seemingly ubiquitous – and becoming more common – most Americans have placed no bets with legal books. That minority that has wagered typically stops after only a few deposits.
Of the millions of high-frequency bettors wagering more than once a month, the majority of them are gambling (and losing) relatively small amounts, especially compared to their above-average financial standing. Prior research evaluated by the 2024 academic papers has shown negligible risk for gamblers wagering 1% or less of their annual salary, which the studies find constitutes most American sports bettors.
A paper from Southern Methodist University assistant professor Wayne Taylor, citing a 2021 Canadian Centre on Substance Use and Addiction study, found that gambling harms increase disproportionately with the percentage of income spent on gambling. This helps explain a “horseshoe” pattern distribution among Americans actively betting with legal books.
For most of the “shoe,” including bettors of all income levels and betting frequencies, sports betting has reached the industry’s stated intention; a form of disposable entertainment.
For this majority, as even the critical academic studies (and some media headlines) will acknowledge, gambling on sports is a disposable entertainment form not unlike a trip to the movies or a night out at the bar. Nearly all bettors are losing money, but the majority of them can financially afford to do so.
That doesn’t preclude the regulated sports betting industry from doing more to protect its customers in what is proven to be an addictive activity.
The National Council on Problem Gambling (NCPG) estimates that 1% of U.S. adults meet the criteria for a severe gambling problem in a given year, and another 2% to 3% experience mild or moderate gambling problems. The widespread expansion of mobile sports betting makes it increasingly easier for problem bettors to trigger negative consequences.
Per the NCPG, “the amount of money lost or won does not determine when gambling becomes problematic,” and “the frequency of a person’s gambling does not determine whether they have a gambling problem.”
For those estimated one million Americans regularly betting with legal sportsbooks split between the two extreme ends of the horseshoe, gambling can be a problem, one that should be and must be addressed by all stakeholders. All efforts should also be directed to the two ends that need help and require it in different ways.
The bankruptcies, the lost marriages, the foreclosed homes, the suicides – these aren’t coming from the 90% of bettors losing a few hundred dollars a year. Attention shouldn’t be focused on a heavy-handed approach to the entire industry. It must be tailored to the two specific subsets of people for which sports betting can be a problem.
The "Whale" Problem
On one edge of the horseshoe is the high end of the economic spectrum, including the small fraction of bettors wagering – and losing – $500,000 or more annually. They're known colloquially in the industry as “whales.” A small portion of the winners (who managed not to be banned or limited) take home so much that it requires the next 80% of gamblers (middle-of-the-road customers that lose comparatively little) to offset those initial losses, per Taylor’s paper.
The sportsbook industry breaks even at around the 85th percentile of gamblers. That bottom 15% (the biggest losers) is the base for the industry’s profit.
Of that small group that makes the most money for the book, Taylor’s study shows that half of the net revenue comes from the highest-spending 3% of losing gamblers.
This money coming from big spending losing bettors can be exacerbated by “VIP hosts” from some of the nation’s largest sportsbooks, per Matt Litt, a litigator against online sports betting operators.
Les Bernal, the national director of Stop Predatory Gambling, said in a 2025 presentation to the Minnesota Senate that he receives a dozen or more calls from clients a week, all of whom had VIP hosts. He testified that VIP hosts will funnel free bets and deposit match bonuses to bettors, most commonly after losing stretches, to keep them gambling.
At the career page for DraftKings, the nation’s second-highest-grossing sportsbook by revenue, there are multiple openings for VIP hosts. Along with positions designed to acquire these top customers, the job description touts the hosts' role in “player development” while offering loyalty rewards and “can’t-miss” VIP experiences.
FanDuel, the No. 1 U.S. book by revenue, also has job openings for hosts. A company webpage features a slide show of ticket and memorabilia giveaways as well as FanDuel-sponsored events.
“VIPs enjoy exclusive promotions and bonuses, exciting events and a personal account manager,” the page says. “Get the best in VIP treatment, reserved only for FanDuel’s top tier players.”
It’s unclear how many bettors are “VIPs” in the eyes of bookmakers or what deposit and/or loss threshold qualifies them for the status. Though they are (most assuredly) losing bettors, many undoubtedly find the program and betting worth the cost.
However, sportsbooks have not faced much scrutiny for their VIP customers gambling beyond their means. Though a small percentage of the gambling public, these players are the biggest gamblers and therefore most suspectable to the society ills outlined in the research paper and the media.
These hosts are a factor unique to the higher end of the financial gambling spectrum and one that has not been properly evaluated by regulators and lawmakers. Many of these bettors can afford to lose more money than an “average” bettor but they, like all gamblers, are in danger of financial ruin if they bet more than they can afford to lose.
Lower-income gamblers
On the other end are the lower-income problem gamblers, the single group most vulnerable to its ill effects.
Per Taylor’s study, gambling policy effects on irresponsible gambling are significantly larger among low-income gamblers than high-income gamblers. The change in bottom-tercile income earners spending at least 10% of income on gambling is about five times larger than the change in top-tercile income earners.
Research from Northwestern University assistant professor Scott Baker, as one would expect, finds that while bets come from all along the income distribution, financially constrained households deposit larger fractions of their income. These households in legal sports betting states disproportionally increase their credit card use, which in turn increases credit card debt and increases account overdrafts.
Tools to assist problem gamblers
Licensed sportsbooks, policymakers, and regulators have taken steps to address these problems. There are many more resources they can implement.
Problem gambling hotline call increases cited in the studies are one of the clearest indicators of the expansion of sports betting. The NCPG found gambler helpline calls grew by 150% over the five full years after legal sports betting was permitted outside Nevada, from 32,666 in 2019 to 83,660 in 2023.
Still, the full scope of this impact is unknown. As Baker notes in his paper, the calls may represent an increase of problem gambling prevalence; yet calls also indicate gambler attempts to access helpful resources.
Anecdotally, many regulators (including at a recent meeting of Vermont officials and policymakers) have noted a significant number of the calls are gamblers looking for betting odds or ways to sign up with a sportsbook.
What is problem gambling? Who is at risk for problem gambling? How much money do you have to lose before gambling becomes a problem?
— NCPG (@NCPGambling) April 12, 2024
Get answers to common questions about problem gambling and its effects at https://t.co/ZKtB5EKw80 pic.twitter.com/TWAsv23Q1w
Beyond blanket advertising, free bets are also one of the industry’s most common – and successful – promotions. Baker’s study found that across all gambling verticals, addicted gamblers were more than twice as responsive to casino promotions or “comps” as non-addicted gamblers.
Though it may sound counterintuitive, policymakers could consider limitations on the amount of free bets and promotions a sportsbook can give a bettor, at least at a ratio to their deposits (IE, if a bettor deposits $1,000, the bettor can’t receive more than $10 in free bets in a given period). Though this may raise eyebrows (“why would we want to prohibit a company from giving away money?”) the nature of gambling and mobile sports betting in particular shows that these “free” bets can have disproportionately negative effects.
Among other tools:
- Most states and sportsbooks should better promote options for deposit limits. These should be easily accessible and prominent in all legal betting jurisdictions.
- DraftKings and FanDuel deserve credit for one-click access to career win/loss statements. These should be encouraged for all sportsbooks and gambling verticals.
- Regulating smartphone push notifications is logistically and politically difficult. But notifications that encourage more betting directly after winning a wager should be more closely scrutinized.
- Encourage voluntary income disclosures when registering. This will allow books and regulators to better monitor if a gambler is wagering beyond their means.
- As sportsbook VIP hosts can check in with players, so too should problem gambling resource personnel. This is constrained mostly by funding, but part of the money allocated from gambling taxes can be used on personal checks for problem gamblers.
- There should be more transparency on larger, long-shot odds. Along with the standard American odds display, bettors should be able to see the implied probability of each bet.
Paying for gambling
The more difficult part of enacting the well-intentioned gambling resources is financing.
Legal sportsbooks have contributed $7.5 billion in taxes since the Supreme Court struck down the federal wagering ban in May 2018, with roughly a third of the money coming from New York. In every state, only a small portion is mandated to go to problem gambling services.
That is also in the context of the more than $450 billion in accepted wagers and nearly $40 billion in operator profit.
With New York a rare exception with its 51% levy on operator gross gaming revenue, most of the 38 legal sports betting states tax sportsbooks between a 10%-20% level. The industry has successfully pushed a rate closer to 10% in most statehouses, arguing it was necessary to attract customers to the legal market.
Approaching the seven-year mark of the court’s decision, it may be time to reconsider these levels.
Attracting customers early in a legal sports betting state’s legalization lifecycle is important, especially against what is shown to be a resilient black market. But after a year (or two, or three) the initial player acquisition efforts' importance is mitigated. Lawmakers should consider a sunset on the business’ preferred rates near 10% and a steady increase closer to the 20% rate that multiple states have shown would still allow operators to remain competitive.
Opponents will argue this hurts new sportsbooks from entering the market. This argument has taken diminished strength as the industry has consolidated around just a few operators.
Illinois has offered a balanced solution to this issue through its bracketed tax rate that sees smaller tax rates at lower income levels and higher rates at increasing levels. This has been opposed strongly by FanDuel and DraftKings, the only two Illinois sportsbooks paying in the top tax bracket, but it could be a way to generate revenue without extinguishing competitive opportunities for smaller operators.
The continued growth of sports betting underscores the need for government aid to help those who will suffer from it. Re-evaluating tax policy, as politically difficult as it may be, is the way to do so.
Other challenges
These studies look back at the first six years of legal sports betting outside Nevada. They can help show us trends for the next six years and beyond.
What’s clear from every indicator is that sports betting has become more common from not just the new forms of legal gambling but existing illegal forms. This has compounded societal shifts that have made sports gambling more acceptable.
Younger male bettors are the demographic group driving this growth. These younger bettors and their habits must be researched and analyzed further as they are set to be the biggest customer base for the industry for decades to come.
Studies have found these younger male bettors are less risk-averse than the public. This can in part help explain the rise of multi-leg parlay betting and a massive shift away from the single-game point spread, moneyline, and totals betting that dominated Nevada betting for decades.
In Summary
UCLA associate professor Brett Hollenbeck and his group, in its critical observation of the industry, laid out an accurate representation of legalized sports gambling today at the macro level.
“Legalized sports gambling undoubtedly has real benefits, as it takes an existing activity out of black markets and subjects it to regulation and taxation. Many, and possibly most bettors, find it a harmless form of recreation and get real enjoyment from placing bets, and the tax revenue raised by states can be used for valuable public services.
“Nevertheless, these benefits potentially come with costs, and measuring and quantifying the scale of these costs is an important input for evaluating the net effects of gambling legalization.”
The key, the research also shows, is to tailor these policies to the minority of bettors most at risk.
Part I – Negative Effects of Gambling Legalization Overblown
Part II – The Average American Sports Bettor Gambles Infrequently
Part III – Perception (Tuesday)
Part IV – Regulation (Wednesday)
Part V – Integrity (Thursday)
Part VI – Wish List (Friday)
