This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Sports betting has grown explosively since 2018, when a U.S. Supreme Court ruling struck down a federal ban on it.
Now, Americans wager more than $165 billion on sports annually, contributing to an industry larger than state-run lotteries even excluding prediction markets such as Kalshi and Polymarket. State governments are likewise cashing in. More than three dozen states have legalized this gambling, and in 2025, they collectively raised more than $3 billion by taxing sportsbooks.
University of Chicago economist Matthew Brown and Ph.D. student Jeffrey Ohl wanted to know how state taxes on sports betting could be designed more effectively. In a recent working paper, they found the tax most states already use is, in many ways, a win for policymakers. This tax, as it's often structured, tends to raise revenues without much affecting the price that individuals pay to make a bet, the study finds.
It argues that most of the tax burden falls on sportsbook profits rather than on bettors, which makes these taxes a relatively efficient way to tax sports betting—although policymakers have to weigh the increased state revenue against the social harm gambling can cause. There's some debate about how much legal sports betting is actually adding to state coffers since it cannibalizes spending on state lotteries. But the top-line figures are significant.
New York, which levies 51% on sports-betting operators—the highest such tax rate in the country—brought in more revenue from that than it did from alcohol and tobacco combined. Sportsbooks set the odds so that the average bettor loses about 9.5 cents of every dollar wagered. (Legendary investor Warren Buffett recently described sports betting as "a tax on stupidity.") Gamblers habitually underestimate those losses. Research by Brown with Nick Grasley and Mariana Guido of consulting firm National Economic Research Associates finds that bettors act as if the cost of a wager is less than half its true price.
Other studies find that household finances deteriorate in states that legalize sports betting. One way states restrain behaviors that are considered harmful is through a sin tax. Most sin taxes are levied per unit, whether that's a pack of cigarettes or a gallon of alcohol.
Extract — continue reading at the source.
