How US states’ online sports betting legalizations affected legal gambling and irresponsible gambling

Disclaimer: This article is co-authored by Wayne Taylor (Southern Methodist University), Daniel McCarthy (University of Maryland, Kenneth C. Wilbur (University of California, San Diego).

We launched our new research with a deceptively simple question: What really happens when a state turns on legal online sports betting? How many people bet a little for fun, and how many push past safe limits? The answer surprised us—and not always in a good way.

Data and methods

We analyzed card spending from 1.2 million individuals’ transactions with 20 major U.S. online sportsbooks from 2019 to 2023, plus their monthly incomes and other spending patterns. All individuals were able to gamble online using Daily Fantasy Sports (DFS) services, and many of them resided in states that legalized online sports betting during the sample period.

The individuals resided in 23 states: 11 that launched online sports betting and 12 that did not, which we used as a comparison group. Think of it as 11 natural experiments comparing each state that "flipped the switch" versus those that didn’t.

We used statistics to create "virtual twin" states for each legalizing state—combinations of non-legalizing states with nearly identical pre-legalization gambling patterns. That enabled us to isolate the "counterfactual" effect of online sports betting legalizations by comparing post-legalization measures to predictions made based on its virtual twin.

How consumer behavior changed

After launch, legal online sports gambling spend jumped from $0.99 to $4.63 per individual per month—a 369% leap that never fell back to baseline.

Risky play rose in lockstep. We flag a month as "irresponsible" when someone bet more than 1% of pre-tax household income, in line with prior work by the Canadian Centre on Substance Use and Addiction, among others. Irresponsible gambling climbed from 0.2% to 0.9% of all tracked individuals/months, a 372% increase. In a state with ten million adults, this 0.7-point rise means about 70,000 more residents hit that 1%-of-income threshold every month.

Low-income bettors were most likely to gamble irresponsibly. Their irresponsible-month rate rose 0.91 percentage points, over 80% more than the 0.49-point rise for high-income bettors. Gambling operators make the most revenue from big spenders, but low-income bettors are most likely to put themselves at risk of harm.

Ripple effects

Casinos didn’t appear to suffer. Contrary to industry fears, online sports betting didn’t cannibalize traditional casino spending. States launching online and in-person betting simultaneously saw casino card spending increase $0.20 per person monthly while online gambling rose $4.26. The pie got bigger — this wasn’t just slicing it up differently.

Alcohol sales surged 20% after legalization, suggesting these "vice" products complement rather than compete.

Help-seeking spiked. Calls to the national problem gambling helpline increased 75%, indicating both increased awareness and increased need.

Policy implications

States banked $0.78 in extra tax per resident monthly. Does this benefit outweigh gambling addiction harm? We don’t know how much of the legal gambling increase came from people switching from illegal services to regulated channels, versus new gambling activity.

What could help

We suggest two targeted tools:

• Income-based default limits. Operators already collect gamblers' income during onboarding. Use this to set personalized default bets and monthly limits, requiring delay periods before increases to prevent loss-chasing.
• Persistent-gambler alerts. Operators see when longtime customers’ loss rates spike. Requiring automatic pauses or interventions could slow the slide.

Where to go next

Key research questions remain: How much represents new spending versus illegal market shifts? What interventions work best for different types of gamblers? How do digital targeting, promotion, and advertising algorithms interact with vulnerable populations or affect risky behaviors?

Conclusion

The U.S. online sports betting market remains new as states adjust their rules. Our findings show that legalization expands the economic pie but dramatically increases gamblers at risk. Getting the balance right—earning revenue while guarding the vulnerable—is essential.

For full methods and results, we invite you to download the paper for free from the Social Science Research Network.

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