The Take Bakery: How to reform the sports gambling industry

It all starts with reducing demand

The backlash to legal sports gambling has arrived.

Shohei Ohtani, the best thing for baseball since longer attention spans, is associated (although likely not involved) with a gambling scandal involving his translator. Jontay Porter, an NBA role player who averages what I put up in my rec league, aroused suspicions after a slew of outsized wagers were placed on his performance, possibly indicating that he was betting on himself. In response, a massive outcry resulted about how legal sports gambling could make it more likely that professional athletes will leverage their influence over games for gambling profit, potentially corrupting our sports for good.

I think the backlash here totally misses the point.

From the Black Sox to Pete Rose, professional athletes have always dipped their toes into the forbidden world of sports gambling. What’s new, and a much bigger problem, is the fact that after the Supreme Court allowed for sports gambling in Murphy V. NCAA, 29 states have legalized wagering online, and almost certainly as a result, addictions in those states skyrocketed.

The real scandal isn’t about the players, it’s about the fans who bet on them. And in order to stop us from becoming a nation of gambling addicts, we desperately need reform.

My proposal? Ban mobile betting, allow bars and restaurants to offer larger private betting books, and impose a transaction tax on individual gambling wagers.

Actionable gambling reform

When I first wrote about the problematic growth of the sports gambling industry back in January, I began by talking about the fact that I, like 20% of Americans, bet on sports. However, since gambling apps are illegal in DC where I live, my friends and I venture out to Virginia to do it. Once we’re safely across state lines, we place our bets. Always — and this is critical — while enjoying steaming hot bowls of pho.

It’s both a joyous tradition and a lesson for how we can regulate our booming sports gambling industry. Because we had to go to a physical location to bet, we weren’t tempted to place quick bets on our phones once back home to try and win back any losses. However, in states with legalized mobile sports gambling, it’s far easier to give into the temptation of compulsive and ill-advised betting.

I refer to this ease of sports gambling access as the casino proximity principle — the idea that people are more likely to gamble if they live near a casino. Sports gambling apps take the casino proximity principle and supercharge it, making it so that anyone can literally carry a casino in their pocket.

In practice, we get a state like New Jersey, which fully legalized mobile sports gambling back in 2018. As a result, there has been constant growth in their monthly betting handle, and a corresponding surge in calls to gambling addiction hotlines. Delaware, which until 2023 allowed sports gambling only in brick and mortar locations, did not see the constant linear growth in monthly sports gambling that New Jersey did. And there’s no indication they saw the kind of massive increase in gambling addictions that we saw in New Jersey.

That leads me to Reform #1: States should follow the brick and mortar principle and ban mobile sports gambling, while licensed bars and restaurants will offer a betting book that is backed by a third party. In turn, this will take the sports casino out of the gamblers pocket and put it into an actual location that they need to travel too.

Now, the second reform is less influenced by ceremonial trips for fragrant soup, and more by the rich tradition of Pigouvian and sin taxes — taxes that seek to disincentivize behavior that negatively impacts individuals and society.

While gambling winnings are currently subject to taxes ranging from 10% to 37%, and sportsbooks pay a small federal excise tax of 0.25%, gamblers don’t face a noticeable tax that is directly levied on their actual wager. That means there is a real opportunity to try to reduce gambling activity through federal, and entirely constitutional, tax policy.

That’s Reform #2: A federal tax on every bet that progressively increases as gamblers reach higher levels of wagering in a calendar year. Here’s an idea of how the sports betting brackets could look:

Why a progressive structure? As mobile sports gambling has boomed, gambling frequency has seen a corresponding rise. And according to the National Council on Problem Gambling, gamblers who bet more than once a week are five times more likely to report addictive gambling behavior.

So the goal here is to not only increase the barriers to wagering by making prospective gamblers travel to actual locations to wager. We also want to cut gambling addictions at the root by financially disincentivizing bet frequency before this behavior can blossom into full blown addictions.

Will true gambling addicts still find a way?

Of course, there are still people who will jump through rings of fire and crawl through a pit of snakes to wager a bet. They will swallow the taxes, and they will pitch a cot at their local sports gambling hole.

That’s not what I’m concerned about with this proposal, though. My worry is that we will inject such high barriers to sports gambling that people (including the disturbing amount of individuals who’ve become addicted in recent years) will simply turn to illegal online sports books with no betting restrictions. Although the FBI could invest more resources in shutting down these websites, they certainly existed back when gambling was illegal under federal law. And there’s good reason to assume that it’ll be difficult to play whack-a-mole with the likely proliferation of illegal sites once these reforms are enacted.

Still, we’re living in the Land of Terrible Options. And it is undeniable that making sports gambling less accessible through brick and mortar licensing and a progressively structured transaction tax will reduce gambling demand in this country.

And that doesn’t just mean we’ll reduce the number of future gambling addicts — it means we will also cut off the cultural salience of sports gambling industry. Yes, I mean those annoying ads.

Cut off the demand, cut off the supply

If you’re a devout sports fan, you see bets discussed during every pre-game show. If you flip through cable television, you’re bound to catch Kevin Hart or Jaime Foxx extolling the virtues of wagering on professional athletes. Even if you live under a rock, I’m confident you’re aware that Charles Barkley has a “can’t miss parlay.” And that he wants you, yes YOU, to stop reading this article and bet right now.

But if we reduce the sports gambling demand, we will in turn cut off the pernicious supply of gambling content that has ingrained itself so deeply in the zeitgeist.

The reasoning is fairly intuitive: These ads constantly implore consumers to download the app and start betting now, and they usually include special offers to kick-start that compulsive behavior immediately. According to Nielsen, 93% of sports gambling ads in 2022 were aired by mobile sports gambling companies.

But if we ban mobile sporting apps, and limit the demand of compulsive gambling behavior, there is just less of an incentive for companies to advertise. The cost of paying celebrities and buying expensive ad spots won’t be worth the potential return due to the lack of customers.

There are, of course, other ways to tamp down the sports advertising industry. Rep. Paul Tonko introduced legislation banning sports gambling advertisements that is modeled after the Federal Cigarette Labeling and Advertising Act. And in my last piece, I also suggested that the FCC take action to ban discussion of gambling during sports broadcasts.

But these will all likely face free and commercial speech challenges, and frankly, it’s more effective to treat the source of the issue. By implementing the brick and mortar rule and introducing a tax that deters high-use gambling behavior, we can hopefully drive the sports gambling industry to the annals of oblivion.

But not too far into oblivion because I actually have a really great NBA finals futures bet. And I’d still like the opportunity to place it.