Missourians Should Reject Sports Betting, Policy Expert Says

Sports betting addiction is a growing crisis in the U.S., with an estimated 30-40% of online sports bettors experiencing problems. In a September article for The Atlantic, policy expert Charles Fain Lehman, a fellow at the Manhattan Institute, concisely argued that the state-by-state legalization of sports gambling was a “huge mistake.”

As of October 2024, there were 38 legal sports betting states, plus Washington, D.C. and Puerto Rico. Thirty of those jurisdictions had online sports betting.

Citing a growing body of research that sports betting causes widespread financial harm, Lehman argued that reestablishing a federal prohibition should be considered.

On Nov. 5, Missourians will decide through a referendum whether to allow the country’s largest sports gambling operators to have access to the Missouri market. In an interview with Gambling Harm, Lehman briefly discussed his widely-read article, his policy background and what Missourians should consider before heading to the polls.

Editor’s note: The following interview was edited for clarity. Lehman’s views expressed in this article are his and not those of the Manhattan Institute.

Gambling Harm: How long have you been monitoring the U.S. betting industry and the recent studies showing the associated harm?

Charles Fain Lehman: The honest answer is only the past year, year and a half. Much of my policy work focuses on drugs and drug policy, so markets in addictive goods. I've been doing that since 2018, and this is an obvious overlap, but I usually come at that from a social scientific perspective. So, as this wave of research has come out, I tried to form an opinion.

GH: Have you been looking at the betting crisis in Australia? The U.K. has also had online sports betting for a while, and they've been battling with it too—but Australia is the epicenter for gambling addiction globally, according to reports. Have you seen any parallels between the growth of the U.S. market and other countries? 

CFL: I haven't followed the Australian case too closely. Looking at countries like the U.K. and Australia is a way to peer into the future, and the evidence is unpleasant. You see increases in suicide. You see increases in bankruptcy.

It's clear in those nations that this is a pervasive problem. We're at the front end. If we want to know what the future looks like, we have to look there.

GH: In your article, you didn't touch too much on this idea of "responsible gambling," which is an industry message mirroring the responsible drinking message from the alcohol industry in the 1970s. Could this messaging fall under scrutiny in the future?

CFL: Predicting the future, I'm not sure. It's certainly possible. Slogans like "drink responsibly" are fairly effective, and that's the analogy people are drawing. People can intuitively understand how to drink responsibly. It's tough to square claims of a focus on responsible gambling with the fact that the industry profits off of irresponsible gambling.

That's the profit model. You see sportsbooks taking advantage of this all the time. The fact that I can get perks and rewards if I lose a lot and get kicked off if I win a lot is a sign that they know who they're targeting. They know who their cash cows are, their "whales," as is the industry term. So, I'm skeptical that messages about personal responsibility have much impact when it's in the firm's interest to encourage irresponsible behavior.

GH: You cited data about how a small minority of players generate considerable revenue for betting companies. Were you surprised by this?

CFL: Not really. Because that's how markets in addictive goods work, they're Pareto distributed. They're power-law distributed, which says 10-20% of your customers do 80-90% of the consumption. That's true in alcohol. It's true in cigarettes. It's true in hard drugs, although there's a truncated distribution because of prohibition. It's also going to be true in gambling. And it's a function of the underlying dynamics. Some people use a little bit. Some people use compulsively. Compulsive usage yields fat-tail usage. And as a result, you get these power users.

GH: We're still in the early days of online sports betting, and there was much talk about sports betting being a foothold to online casino legalization, which is a more significant revenue driver for these companies. It's unclear if online casino gambling is more addictive than online sports betting.

CFL: Quite certainly that's the end goal. The purest form of gambling is the slot machine, right? You can optimize it for reinforcement to extract money from people. We're going there. To some extent, sports gambling is just the wedge issue the industry uses to open this. Once you make the argument that people should be able to do sports gambling, they should be able to do what they want; it's easy to go from there to, well, people should be able to do what they want, and therefore, you'll have a casino on your phone.

GH: The betting industry buzzword is "engagement.” The leagues have also embraced sports betting for what they call engagement. There was a 60 Minutes interview with the American Gaming Association from earlier this year where the group compared betting apps to every other app with compulsive use, like social media apps. Is there an alarming trend of grouping online betting apps with apps more broadly and normalizing them through this argument?

CL: In some sense, that is accurate, but it's akin to the argument that coffee and heroin are the same kind of thing because they're both reinforcing. That's true. When you talk about addiction, the functional definition of addiction is continued use despite harm to yourself or others, negative consequences. That’s the difference between a habit and an addiction. Coffee is a habit. You get relatively little harm.

Social media apps do not cause harm of the same kind or magnitude as sports betting. It's hard to go bankrupt from using Facebook. While there are social harms, there are also social benefits associated with social media. It's good for people to be able to talk to their friends far away.

There are very few social benefits associated with gambling. There is some analogy, that's not wrong, but there's also an analogy between gambling and heroin. There's an analogy between social media and heroin. However, the particulars matter when you're doing an actual analysis of the appropriate regulatory structure.

GH: What's the feedback from your Atlantic article?

CFL: I'm a writer, so I don't read the comments. That's a self-preservation thing for writers. That said, the feedback has been almost uniformly positive, which is very interesting. Right? It says that lots of people get that this is a problem. And the most successful articles, in my experience, are not the ones that say something new. They're the articles that say something everyone else was thinking and haven't known how to put it into words. I didn't say anything new. I think I put into words what some people didn't quite know how to phrase.

Most negative feedback has come from people advancing unpersuasive arguments about, well, shouldn't we just let people do what they want? We don't live in that society. Maybe you have a claim that we should live in that society, but there are lots of things that people are prohibited from doing. I can't buy heroin over the counter. I can't get methamphetamine without a prescription. That's the world that we live in. I think that world is better than not. So you have to work harder to persuade me that people should be able to do whatever they want because that's not our reality.

GH: Missourians are going to vote on sports betting on Nov. 5. Sports betting, according to the polls, has about 50% support, and a quarter of people are undecided about online sports betting in Missouri, and another quarter are opposed. What would you say to voters there who are deciding about sports betting?

CFL: My top line point is to ask yourself, if you're a hypothetical voter in Missouri, how would you expect your life and society to change after this passes versus not. Under the status quo, you can make bets with your friends. You can run your own little [betting pool]. You can bet on the game, and that's fun. What changes after sports betting legalization is two things:

One is that you are constantly barraged with admonitions to gamble. Sports will be about that now. That's what you're going to be surrounded with 24/7. 

And the second is that you're going to know somebody in your life—maybe it's going to be you, maybe it's going be somebody else. It will probably be a young man who spends all his time and money on sports betting. And you're going to see how that's ruining his life. And that's going to be unpleasant. Maybe it's your brother. Maybe it's your uncle. Maybe It's your cousin. Maybe it's your nephew. There's going to be somebody.

That person is going to be much worse off. So the question is whether your life will be better afterward. My suspicion is mostly no. I don't think one can look at the experience of other states and go, yeah, this is something I want.

GH: Ironically, a former sponsor of a defunct sports betting bill in Missouri opposes the referendum. He says the 10% tax rate on adjusted gross revenue is far too low, and as little as $5 million would go to combat problem gambling in Missouri. To have opposition from a lawmaker who introduced legislation to legalize online sports betting is notable.

Some states have proposed raising taxes on sports betting operators. Illinois raised its tax rate, and then the sportsbooks threatened to either leave or implement a surcharge on customers. So, the industry strongly reacts to any tax rate increase.

CFL: Two problems there. So, problem one is you can have regulatory capture where the regulators try to do something conducive to the public good, and the regulated industry says, no, we don't want that. We will exercise our power to go elsewhere.

That keeps the market relatively unregulated. But there's also this other trade-off: There's a pre-existing gray market in sports betting, which doesn't seem to shrink in size. And in a legalized context, what's the difference between the gray and unregulated markets? The unregulated market doesn't have any regulation, so it's cheaper.

So, even if you can successfully raise taxes, you may drive people out of the regulated market into the unregulated market. Cigarette taxes are an example, and you can find a relationship between the tax level and the rate of unlicensed sales.

GH: I want to touch on your conclusion to the article where you suggest reestablishing a prohibition. Can even having that conversation pump the brakes on this industry? 

CFL: If I succeed only in moving the Overton window toward regulation, I will be very happy. That would be great. That is entirely plausible. That said, there's a prudential case for prohibition: to put it succinctly, it's easier. As we alluded to, regulatory capture is a real issue. The neat thing about prohibition is that you're not monkeying around the edges. You're not trying to avoid the industry telling you what to do. All you're doing is saying you can't do this—end of discussion.

I also try to emphasize that sports gambling was prohibited nationwide in 1992. That's not that long ago, and it was done with a bipartisan majority in Congress and the support of every major sports league. We're not talking about some foreign country or long-off distant time when we all were like, "No, this is clearly bad."

The prohibition of sports betting is less implausible than most people think.

GH: Do you think sports gambling addiction could become an issue that a future presidential candidate might bring up in a debate or on the campaign trail?

CFL: I would prefer that it didn't come up in a presidential election. And the reason is that Congress gets traction on issues like this by not talking about it publicly and not letting it get polarized. Congress could decide to do this on the side or delegate authority to a commission to impose regulations or whatever executive branch agency.

There's the [SAFE Bet Act] to have the Department of Justice preclear states. I don't think that will survive Constitutional scrutiny. I prefer this to be as far away from the public as possible because that's usually when things get done in this sort of space.

Image of MO State Capitol Building via Wikipedia.