The Stakes of the Game: Online Sports Betting in Texas, Part 2 of 3

This is the second of three essays about online sports betting in Texas. The first essay discussed the proposed ballot initiative that could be considered by the state legislature. The proposal is to let the voters decide on online sports betting. I argue in the first essay that this is not just a question of whether voters should be given the opportunity to decide on this particular issue, but it is a more fundamental question of whether we want to live in a democracy or a republic. The third essay will review what has occurred in the thirty-nine states that have legalized online sports betting since 2018. This essay will review the arguments for and against online sports betting. As stated in the first essay, I will not take a side. My objective is to lay a foundation before the influence campaigns begin.

The Pros and Cons

The arguments in favor of online sports betting can be clustered into two categories: economics and liberty. The economic argument is that more jobs will be created and there will be more tax revenue generated for the state. The liberty argument takes a more principle-based approach. I put forth the economic argument followed by a rebuttal, and then the liberty argument followed by a rebuttal.

Economic Argument

The Sports Betting Alliance estimates that online sports betting will generate $250 million in tax revenue for the state annually. This money can be used to buy down property taxes or go towards programs that are currently underfunded. Texas spends about $40 per capita on mental health services compared to the national average of $119. Texas has the fifth highest homeless population in the United States putting it right between Washington and Oregon.

But instead of spending more money on more programs, Texans have made it clear that they want to eliminate property taxes. Tax revenue from online sports betting can help Texas move in that direction.

Also, sports betting could create an estimated 900 jobs in the state which will have additional spillover effects. For every job created that’s more money that enters the economy which in turn creates more jobs and generates even more tax revenue through sales tax. The optimistic estimates put the total economic impact at $2.6 billion and 8000 new jobs. As the economy grows more jobs will be created even if not directly related to online sports betting. This flywheel effect is one way that economies grow through diversification. This increased economic activity would generate an additional $24.3 million in sales tax revenue on top of the $250 million directly related to online gambling.

Economic Argument: A Rebuttal

Texas has a total Gross State Product of more than $2.0 trillion which makes it the eighth largest economy in the world. The most optimistic estimates of the total economic impact of sports betting would have less than a 0.13% total impact. That’s like getting an annual raise of $130 if you make $100,000 a year. The total dollar value put forth by advocates sounds impressive, but given the size of the Texas economy, the actual economic impact is quite insignificant.

Texas has a current unemployment rate of 4.2% which means 652,000 people, who want work, are out of work. We have a workforce of more than 14 million adults. The number of jobs that online sports betting would create in Texas is not going to have a substantive impact. Moreover, there is no guarantee that the jobs created will go to Texans. People move to Texas for jobs and a lower cost of living. More than 600,000 people moved to Texas from 2022-2023 and we added just over 274,000 jobs in that time. When a job is created in Texas, job seekers from all over the country apply for it. If we assume that the Sports Betting Alliance is accurate in its predictions, and not just offering a best-case scenario, the 900 jobs directly related to online sports betting would be 0.32% of the total jobs created from 2022-2023.   

The State of Texas has an annual budget of $321 billion which means $250 million in incremental revenue is only about 0.07%. Most of our property taxes come from school districts. The total property tax revenue generated by Texas school districts in 2022 was $73 billion and total property tax revenues from all taxing entities is just over $82 billion. Even if the state chose to buy down property taxes with the additional tax revenue from online sports gambling the state would still need to make up more than $81 billion. Taxes from online sports betting is not a viable path for eliminating property taxes.

We already have gambling in Texas, and Texans have heard these arguments before when the lottery was put to voters in 1991. The lottery was supposed to supplement school budgets and reduce the state’s reliance on property taxes. How has that worked out for homeowners? Are you happy with last year’s tax bill? If you believe the government will spend less if you give it more, history would like a conversation with you.

Liberty Argument

Adults should be treated like adults and it’s not the government’s responsibility to restrict access to a vice in which adults choose to partake. Like alcohol and tobacco, the role of government is not to infantilize adults by restricting access to these vices, but it is to make sure property rights are preserved through the enforcement of contracts and prevent providers from making deceptive claims.

For instance, a customer should be confident that a gambling platform will pay them. Citizens of Texas who currently bet online must go through unregulated offshore providers or a traditional bookie. If one of these providers locks someone out of their account, absconds with their money, or refuses to pay winnings, there is no recourse for a citizen of Texas where online sports gambling is illegal.

Additionally, there is nothing to stop an unscrupulous actor from advertising “Winning is guaranteed at Cayman Island Sports Betting” except government regulation. Cigarette companies can no longer market to children and alcohol companies cannot claim that their product allows you to drive unimpaired. The only reason citizens are protected in this way is because tobacco and alcohol are legal which means they can be regulated.

The role of government should not be to tell citizens how to spend their time or money. “A society that does not recognize that each individual has values of his own which he is entitled to follow can have no respect for the dignity of the individual and cannot really know freedom.” Friedrich von Hayek, who wrote those lines, was a Nobel Prize winning economist whose commitment to freedom and liberty has continued to leave a mark on American politics. Ron Paul and Rand Paul are both ardent supporters of the Austrian school of economics that Hayek provided the intellectual scaffolding for. In the libertarian view, it is not the government’s role to dictate our choices.

In commerce, the role of government is to make sure that when two consenting parties enter an agreement, that both sides honor that agreement. It was James Madison, in his essay On Property, who wrote, “Government is instituted to protect property of every sort…This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.” The proper role of government is to make sure consenting adults have the opportunity to make choices, contracts are honored, and businesses do not engage in deceptive business practices.

Liberty Argument: A Rebuttal

No reasonable person criticizes a government for prohibiting the use of heroin or methamphetamine or would advocate for their legalization. Liberty does not mean license. Teddy Roosevelt warned that “when liberty becomes license, some form of one-man power is not far distant.” The downfall of the Roman republic was precipitated by a replacement of liberty with license. Julius Caesar rose to power by giving bread and circuses to the masses. Cicero and Cato fought to safeguard the republic by imposing fiscal restraint, promoting republican virtue, and protecting the rule of law. A commitment to traditional virtues diminished as Rome placated citizens by substituting license for liberty. Citizens did not oppose this exchange as they received government handouts and were kept distracted by festivals, battles, and events in the Coliseum. Caesar’s appeal to the masses was successful. Cicero and Cato lost their lives, an emperor took control, and the republic fell.

Like social media platforms, online betting platforms use algorithms to keep gamblers betting. Online sports betting is more like a casino than traditional sports betting. In traditional sports betting a player makes a wager on the outcome of a game. The player waits for the game to end, then either decide to bet on another game or walkaway. Now, online sportsbooks allow players to bet on in-game action. They can bet on who catches the next pass or who makes the next three pointer. Players can also bet before and after each quarter or period. Online sportsbooks incentivize increased betting behavior by shifting the odds and incentives to make in-game bets more appealing and advertise the non-stop action. The objective of online sportsbooks is to get players to bet more frequently so the sportsbook makes more money. They utilize algorithms to learn what will move the player to bet more frequently the same way social media uses algorithms to keep people scrolling. These platforms manipulate our behavior. To think that one has liberty when one is gambling is self-delusion.

To make matters worse, online sportsbooks limit the amount they lose and increase their revenue by controlling which players can bet and how much. As the Wall Street Journal reports, anyone who is on a hot streak will have their bets limited in both size and frequency by the sportsbook whereas perennial losers will receive more incentives and advertisements to gamble. For those who think that online sports betting is fairer than betting with a traditional bookie because it’s regulated does not understand how sportsbooks operate.

As Russell Kirk, one of the intellectual standard bearers of American conservatism, wrote “the conservative perceives the need for prudent restraint upon power and human passions.” Social media companies have become some of the most powerful companies in the world due to their ability to capture attention, shape opinion, and then sell our information to those who want to sell us products. Online sportsbooks function the same way but take out the middleman—they are selling us more of their own product. The government should not be in the business of making its citizens worse off by introducing vices. Those who engage with social media and online betting platforms are no more in control of their decisions than a heroin addict is of theirs. To break the addiction requires outside intervention from friends, family, and coworkers—if it’s even possible. The government exists, because left to our own devices, we will default to our most base passions which makes life “nasty, short, and brutish” according to Thomas Hobbes. We need government to establish a basic framework that allows us to act according to our reason and higher desires. Introducing gambling undermines that pursuit by reducing the populace to its most base characteristics.  

Summary

This essay outlined the two main categories of arguments, economic and liberty, put forth by gaming advocates and then offered a rebuttal to each. The intention of this essay is not to persuade anyone but to articulate both sides of the argument as strongly as I can. The next, and final essay in this three-part series, will look at what has happened when other states legalized online sports betting. One of the advantages of federalism is that the states act as laboratories for policy experimentation.