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

This essay is part three of a series by Kyle Scott exploring the arguments for and against legalizing online sports betting in Texas. Click here to read part one, which discusses whether sports betting should be legal and whether citizens should be allowed to vote on the matter. Click here to view part two, which discusses both sides of the the economic and liberty arguments for and against legalizing online sports betting in Texas. 

Federalism is an inherently conservative government structure. Conservativism demands government on the smallest scale possible. Families and local communities should be left to govern themselves until they run into a problem that they agree they cannot solve on their own. These communities will then consent to form a larger governing unit capable of addressing the problem.

Federalism is derived from the principle of subsidiarity which was given its first full philosophical treatment by the jurist Johannes Althusius in Politica (1603). Pope Leo XIII incorporated subsidiarity into Catholic social teaching: “Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do.”

This idea of subsidiarity was incorporated in the U.S. Constitutional order with the ratification of the 10th Amendment as it left the states sovereign over all the issues that were not delegated to the national government in the Constitution. This amplified the founder’s intention of placing constraints on congressional authority within Article I of the Constitution, specifically section 8 which delegates only twenty-seven powers to congress while also including the “necessary and proper” clause for implied powers. James Madison wrote in Federalist #45 that “the powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite.”

This reflects Justice Samuel Alito’s understanding of federalism. Writing for the majority in Murphy vs. NCAA, which allowed the states to legalize online sports betting, Justice Alito was correct when he wrote, “the legalization of sports gambling requires an important policy choice, but the choice is not ours [the Supreme Court’s] to make.” This allowed the states to make their own decisions.

In addition to being a safeguard for liberty, federalism also incorporates another conservative principle: humility. Unlike progressives who believe in the perfectibility of man, that we can create a utopia on earth with a few clever tweaks, conservatives admit that there will always be limitations and imperfections. No matter how carefully we think through a problem and solution, there will be unintended consequences. Federalism allows for learning through experimentation. Because the smaller governing units are allowed to enact policies it thinks are right for them, other governing units can observe the changes to see if it’s a policy they would like to adopt. If Oklahoma adopts Policy X, Texas can observe the effects to see if it’s right for Texans before it adopts a similar policy. Now that thirty-nine states have legalized online sports betting, Texas has six years of data on which to base its decision.

What we have learned:

There are tax revenue benefits for those states that legalize online sports betting. New York brought in $862 million in tax revenue in 2023 and more than $2 billion from 2021-2023. New Jersey, the first state to adopt online sports betting, and Illinois have each brought in more than $1 billion in tax revenue since 2018 according to the University of Michigan. In New York the additional revenue has gone to public education and Illinois has deployed its increased revenue to capital projects and public education. Absent the new revenue stream, the states would have either raised taxes, issued bonds, or gone without the additional spending. The additional revenue is essentially free money by taxing sportsbooks. Additionally, the federal government gets to tax individual winnings which also increases the federal government’s revenue. With each new legal gambler, the government—both state and national—gets more money.

The American Gaming Association estimates that the total economic output from legal sports gambling in the U.S. will reach $41.2 billion and create $11 billion in total labor income across 216,671 new jobs as either a direct or indirect result of legal sports gambling. The states that have adopted online sports betting have claimed new job growth as a result, but no state has reported those numbers, and no independent study has verified. However, it is logical that when a new industry is legalized new jobs will be created. It is estimated that 900 jobs will be created in Texas that are directly related to online sports betting. There are no grounds on which to dispute that number and no study has tried to.

The negative consequences are both financial and social. The National Bureau of Economic Research conducted a study that found in the states that have legalized online sports betting, there was a 14% reduction in long term investments such as stocks, bonds, and savings accounts. According to the study, for every one dollar an individual bet online, there was a two-dollar reduction in stock market investment activity from that individual. People do not have unlimited income, so they must make choices. People who bet online choose to put their money on a three-game parlay instead of the S&P 500.

A study out of Southern Methodist University found that 43% of those who participate in sports betting wager at least 1% of their income and 9% wager at least 10% of their income. The study also found that as income level drops, people gamble more of their income. Like the lottery, online sports betting helps make poor people poorer.

A study by researchers in California found that when a state legalizes online sports betting, credit scores drop, bankruptcies rise, and debt collections increase. A study by researchers at Northwestern University found the same effects but added that credit card debt increases, bank overdraft frequency increases, and the propensity to play the lottery increases. In other words, if casinos are put in everyone’s pocket, those who choose to use them will have a higher probability of lowering their credit score, going bankrupt, going into debt, playing the lottery, and having their car repossessed. These negative externalities will likely eat up any tax revenue gains as the state will be forced to deal with a population that is financially worse off. Even if it is not through the creation of a financial safety net, crime could rise as a result of new financial strain which requires putting more resources into the criminal justice system.

Two potential outcomes that have received significant research attention that have unclear results are suicide and youth gambling. No studies dispute that state revenues increase, and jobs are created. No studies dispute that it makes those who gamble financially worse off. Some studies show that suicide rates increase when online sports betting is legal, and others show it has no affect. The issue of youth gambling also doesn’t have reliable data. There is no convincing evidence for either side. What is clear is that addiction to gambling occurs in 1 and 6 gamblers and the probability increases with the individual’s proximity to a gambling establishment. Online sports betting is in our pockets.

Conclusion

This is what we have learned in the past six years: there are benefits and drawbacks with the legalization of online sports betting. Like Thomas Sowell wrote, “there are no solutions, only tradeoffs.” It is for the state legislature and voters to decide if the tradeoffs are worth it. And there will be trade offs whether we adopt it or not—there are no free lunches.

It has been my intention to lay out the arguments on both sides of the issue as strongly as I could. It is important to set a baseline for the debate before the matter reaches the floor of the legislature or voters at the ballot box. Once that occurs, the campaigning starts and the entrenched interests on both sides will try to shade the arguments in their favor. This is a complex issue. I hope to have captured its complexity and given the readers a different way to view the debate. It is also my hope that we think about this issue not in terms of the one or two arguments that best support our preferences, but in the totality of tradeoffs.

Kyle Scott, PhD, MBA, is a longtime taxpayer advocate beginning with his service on the Lone Star College Board of Trustees. Scott is currently a professor of entrepreneurship and business owner. He was elected to the Harris Central Appraisal District Board of Directors in 2024. Kyle lives with his wife, Bethany, and two teenage children in Spring, TX. They have been members of Trinity Klein Lutheran Church for 16 years.

[email protected]   X:@kanthonyscott