“They fatten upon wretchedness, and have the effrontery to demand that the laws of the State shall be adapted to their purposes.” So said Charles Evans Hughes, Republican governor of New York and eventual Chief Justice of the Supreme Court, about Empire State gambling operators in 1908.
More than a century later, Hughes’s words ring true as the United States faces an explosion of legal online gambling. Sports betting, decriminalized by the Supreme Court in 2018, has spread to 39 states. Online casinos, which include slots, blackjack, and more, are permitted in seven. Americans now gamble roughly $1 billion a day on state-sanctioned apps like DraftKings and FanDuel—far more if one includes the lottery and meme-stock or crypto speculation.
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Many have championed this newfound embrace of financial thrill-seeking. According to The Economist, America’s “gambling boom should be celebrated as an expansion of people’s freedom to lead their lives as they choose.” Bill Miller, president of the American Gaming Association, the gambling industry’s main lobbying group, wrote last year that online sports betting is a “vibrant and responsible industry that prioritizes consumer protections” and is “generat[ing] significant economic benefits.” According to Miller, gambling is innocuous, “a voluntary entertainment option, comparable to attending a concert, dining out, or going to the movies.”
But gambling is not like attending a concert or going to the movies. It is, like drugs or alcohol, an addictive product that many can enjoy safely but some cannot. The dangers of addiction are multiplied when we can bet on our phones at all hours of the day, and when gambling companies utilize sophisticated algorithms and troves of personal data to extract the maximum amount of money from customers.
Horror stories where users are bled dry with the help of VIP hosts––casino employees tasked with appeasing big losers––have become far too common. That’s because the gambling industry, like the alcohol industry, is reliant on problem users.
For at least one major U.S. operator, VIP customers represented just 0.5 percent of the user base while generating more than 70 percent of the company’s revenue. In the U.K., where online gambling has been legal for longer and better data exist, 5 percent of users account for 86 percent of industry profits. Gamblers from the poorest areas are overrepresented among the biggest losers.
Social scientists have documented widespread societal harms in states with legal online gambling, alongside rising rates of gambling addiction and problem gambling. These include lower savings and credit scores and increased bankruptcies and debt delinquency.
Problems are concentrated among young men, particularly those with lower incomes and savings. Recent surveys have shown that as many as one in five male college students are using student loan money to fund gambling.
Proponents of expanded online gambling also greatly exaggerate the benefits. Tax revenue is meager, quickly diminishes over time, and relies substantially on problem gamblers. The overall impact of online gambling on the economy is negative after accounting for social and opportunity costs. Most studies showing positive impacts underweight the cost of addiction and the fact that money lost on gambling would otherwise have been spent on more economically productive activities. The black market, which advocates said would dry up as users move to legal sites, is thriving because more people than ever are gambling and their play spills over into unregulated spaces.
In response to these costs, some commentators (including City Journal’s Charles Fain Lehman) have suggested a blanket ban on online gambling. The logic is simple: gambling, particularly on our phones, is bad for lots of people and for society writ large. Prohibiting it would cut the problem off at the root and obviate the need for complex, often ineffective regulation.
But prohibition is not a cure-all. While a ban would surely reduce the number of bettors and de-normalize the activity, many would simply continue their play with unregulated operators––especially now that the population of gamblers has expanded from years of legalization. This is particularly true for those most at risk, who would be even less likely to seek or receive treatment.
The alternative to prohibition, however, isn’t to give online gambling free rein. Like other vices, it should be regulated to reduce its negative indirect effects, correct information asymmetries, and address behavioral market failures by focusing on the two aspects that justify government intervention: addiction and predation.
Some gambling products, just like some drugs, are beyond the pale and ought to be banned completely. Online slots, for example, are engineered to ensnare users, and carry far greater risks of addiction than online sports betting. The financial harms are also immense. In Pennsylvania, the largest state with legal online casinos, residents lost $27 million betting on sports in March. During the same period, they lost $238 million to online casinos—75 percent of which came from slots.
Sports betting, however, can be enjoyed safely by most users. Regulators can combat addiction by providing clear rules about how operators should identify and respond to problem gambling and by implementing hefty fines for noncompliance. Currently, DraftKings doesn’t have any incentive to flag VIPs who show signs of addiction, because they’ll just go over to FanDuel. But if the company knew that a million-dollar fine was possible, it would be a lot more careful.
Problem gambling checks shouldn’t be restricted to high rollers. Any gambler who deposits money a dozen times in a single day, drastically increases their stakes after losing, or frequently cancels withdrawals should be flagged. Regulations can be modeled after dram shop laws, which hold alcohol vendors accountable for over-serving obviously intoxicated patrons.
Regulators should also restrict the amount and nature of gambling advertisements. You should be able to watch sporting events without gambling being shoved in your face, especially for events with a largely underage audience.
Moreover, sportsbooks shouldn’t be able to sell the idea that anyone can win big while simultaneously kicking out customers who can beat them. Like health warnings on cigarette cartons, ads should come with a disclosure that the odds are not in your favor. States should also invest more in education programs to combat widespread delusions and misunderstandings about sports betting.
Gambling is currently regulated at the state level, but federal involvement is coming whether anyone likes it or not. Some regulations––like a national self-exclusion list, so addicts who opt to ban themselves can’t simply cross state lines to gamble––are straightforward. Others, such as determining appropriate minimum safeguards, are trickier. But just as Congress stepped in to regulate tobacco and alcohol, it should now do the same for online gambling.
In many ways, the fight to regulate today’s online gambling operators echoes Hughes’s fight against racetracks in the early 1900s. Both feature wealthy industries wielding outsize influence, lawmakers seduced by “free” revenue for pet projects, and dubious claims about eliminating black markets.
But unlike a century ago, gambling has become frictionless and ubiquitous. Gamblers can gamble day and night, on the couch and in the shower, on NBA-themed slots and Russian table tennis. Their bookies, meanwhile, know everything about them and can provide personalized inducements to keep them gambling. For some this is an incredible convenience, for others an unmitigated disaster.
The question facing policymakers isn’t whether gambling should exist, but how to prevent addiction and predation while permitting recreational use. Banning online casinos and more effectively regulating sports betting would strike the balance between personal liberty and necessary protection. After all, Americans should be free to gamble—but not with loaded dice.
Photo by Mark Makela for The Washington Post via Getty Images
