The Sports Gambling Experiment Has Failed — What Can We Do About It? | The 1600

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0:41So today we are once again kind of taking a little bit of a break from the day-to-day politics of everything Trump-related, which of course you can catch up with in the newsletter every day. But I wanted to talk about something that's sort of become an issue that I've been paying a lot more attention to. And I'm talking about sports gambling. We've had guests in the past on the show talking about prediction markets, but I want to get to the heart of the real issue with this sort of explosion in gambling and wagering that we've seen lately. And that, of course, is the sports betting market. So my guest today is Tyler Ransom.

1:15Tyler is a professor of economics at the University of Oklahoma. Go Sooners. His recent paper on sports betting titled The Sports Gambling Experiment Has Failed made quite a bit of a stir online when he released it within the last couple of weeks. Tyler is now with me to talk through his analysis. Tyler, welcome, man. Thank you very much for having me. No, I'm excited to talk to you about this. So the thesis of this paper that you put out of your work on this subject is essentially that – and obviously stop me if I'm off base here. But to a layman, the thesis is essentially that the legalization of mobile sports betting in the United States, which, of course, was made possible through a SCOTUS, a Supreme Court decision back in 2018, that that was a massive policy mistake and it has caused serious and real societal harms and that there is now enough data to support that thesis.

2:11Again, talk to me a little bit just like a layman about what your research in this in this field found. Sure. Yeah, I mean, I should point out that I'm not a primary researcher in this topic, but I've sort of been following the literature, so it's more of like a top-level analysis than a primary analysis. But yeah, I mean, the papers that I've come across have all pointed to negative impacts in terms of people's financial health at the household level and also intimate partner violence at the household level. And so if you kind of add up these things, then maybe we should think twice about the added entertainment value or added tax revenue that gambling legalization has brought in.

2:57Okay. I want to get to all of those harms, which are pretty astounding when you really look at the data. But let's take a step back here. So in 2018, Supreme Court overturned PASPA, which is the federal ban on sports betting, for lack of a better word. Since then, And 38 states have legalized mobile sports betting. $93 billion was wagered just in 2022, which is the last year that I found good numbers for. You probably have better numbers than me. Calls to the gambling helpline are up since then 45 percent. What exactly changed with that Supreme Court decision and how did it happen so fast? Well, I think there was always latent demand for being able to put money on a game.

3:42You know, I've been a longtime sports fan and, you know, just in the popular conversation around sports, you'll hear people talking about what the point spread is or, you know, what the odds are. And so I think there's been casual sports fans just always wanting to put some money down. But then what really accelerated things is the integration with the smartphone. And that was really only made possible after this ruling. So the ruling, as far as I understand it, it legalized sports gambling in whatever states. It's the state's decision to make that. And then in some states, you have to go to a physical location to place a bet.

4:26But then in other states, you can either do a physical location or you can do it over your phone. And the phone aspect is really where things have gotten out of control, in my opinion. I would agree and I've seen it among my own cohort, my own friends who were not at all. Maybe they would talk a little bit about the spread of a game or something, but they were not putting down money on random soccer games or random early season MLB games. They, of course, would argue, as any addict would, I guess you could say, that, hey, it makes the game more fun. It puts a little – you're more invested, even if it's a game that you don't really care about because it's not your team playing.

5:10But before we get to sort of the harms of that mentality, help people understand a little bit about how the product, the product being mobile sports betting, actually works. Because I think a lot of sort of casual bettors out there may not understand that the odds are structured against them from the get-go. Can you just sort of like walk us through the VIG? Sure. Yeah. I mean, basically the house needs to make some money, and so they're going to take a small cut out of every bet that's placed, and it's called the VIG or the JUICE. And so even if you were betting on whether a fair coin would be heads or tails, your take-home expected winning is less than what the fair odds would say because the house is taking a small cut of that.

5:58So it's not 50-50. Exactly. It's more like 47 and a half, 47 and a half. If you were to say, I'm going to put down$100 that the coin comes up heads next time, then they'd say, well, we'll give you your money back. And, you know, or like in expectation, you would get only an expected payout of 47 and a half dollars. So how do parlays? So parlays are this idea of sort of chaining multiple bets together. These are some of the most heavily marketed products, right? This is where you see these in if you're ever just watching an NFL game or even even an NBA game now. I've been watching the Knicks and like every every other ad now is for these sports books.

6:41And they're they're always shilling for these parlays. This is where the house edge really balloons most dramatically. Right. So this is according to your research. A six leg parlay pays 40 bucks roughly when the mathematically fair payout would be about sixty four dollars. And again, these are the bets that are being marketed in every ad. What does that tell you about the business model here? Yeah, I mean, it's just geared towards making as much money as you can from the gambling house perspective. And so if you're going to lay down the odds and someone's going to take it, then that's a paying customer and let's keep that going.

7:17And so I think it's hard for people to think in terms of probabilities. and so it's easy to kind of sweep some of this stuff under the rug from the gambling house perspective and still make the customer feel like they're getting a fair bet. How should people think about probabilities? As an economist, I mean, you think about this stuff all the time. What's your advice for those of us who aren't in the data all day long? Yeah, I mean, that is a really difficult thing, and even sometimes it's hard for me to think about probabilities. You know, I think Nate Silver has some good work on this in some of his books where like the chance of something happening one in a thousand versus one in 500 relative to something happening one in four versus one in two, like it's the same relative odds, but the other two are, you know, the first two I said are very, very small event probabilities.

8:11And so I think, you know, and even from a sports fan perspective, you don't know what the odds are that whatever player, Jalen Brunson or whatever, is going to score 40 points tonight. Right. Because you haven't looked at the data to know, like, okay, well, what's the distribution of his scoring average or whatever? And so, yeah, I think you need to make sure that you're, if you are wanting to put money on a game and you're wanting to do this to try to earn money, well, first I would say that's a fool's errand. But if you were going to do that, you'd have to spend a lot of time in the data looking at trends, looking at matchups, and all that.

8:55And again, most casual bettors are not doing that, and they wouldn't argue that they want to do that. Exactly. They're playing because it's fun or they're going with their gut. So you make the case in your work that even if the lines were totally perfectly fair, most bettors would still lose. And that's just a virtue of human psychology. Talk a little bit about sort of like the behavioral biases that this industry exploits so well. Yeah, I mean, I think there's a lot of, you know, human nature is, you think in the short term, there's certain logical fallacies that humans are prone to. Like, okay, well, the Knicks just won three in a row.

9:38They're probably, there's kind of two extremes here where you can say, oh, well, mean reversion says that they're not going to win the next one. Or the gambler's fallacy says, well, that, you know, they're just going to keep this up. or the hot hand fallacy is also sometimes called. And so, you know, there's other aspects of like chasing losses. So, you know, I lost my first bet. Now I'm going double or nothing to try to recoup my money. Those are all human psychological shortfalls that the gambling houses can capitalize on. And, I mean, to a certain extent, it's also done by a lot of other companies out there.

10:17So it's not just the gamblers that are trying to capitalize on human frailty. Well, and also it's not – I mean this is not relative – this is not exclusive to mobile – to the sports books like FanDuel and whatnot. I mean this is how Vegas has operated forever, right? Exactly. The difference, of course, is in the old days you had to go to Vegas to make these bets, right? So it established some friction in the process, which I want to get to in a minute. But before we get to sort of the idea of defrictionizing this entire process, which I think is the real harm that's being done here, I noticed that you reference Zvi Moskowitz, who is a rationalist thinker, blogger, sort of like an AI guy.

11:06But I know that he's done some work in this stuff. And he's made this really interesting analogy comparing smartphone betting. Basically, what he says is it's like forcing an alcoholic to carry around a flask all day. Only it's actually worse than that because the flask also pings you all day with a notification saying, hey, time to want to drink. Want to drink now? How about now? How about now? How about now? And he also his work has also showed some of the correlations that you're talking about with the uptake in sports betting and increased auto loan delinquencies, reduction in household savings, domestic violence increase.

11:42But what do you make of his sort of like the flask analogy? I thought that was sort of clever. I mean, I can't say anything about the data particularly, but I think Zvi is a very smart person and it rings true to me subjectively. And, you know, you can just imagine the absurdity of some guy in a suit walking around following you, asking if you want to put money on this game or this game or what about this parlay. and that's really what it is and it's very you know not only is it frustrating just from an outsider's perspective because I'm not a better but also just there's collateral distraction like I just want to enjoy a game and I'm being forced to look at all these odds and you know talk about winnings and even you know they integrate it really a lot into the entertainment aspect of the sporting event and it gets pretty annoying.

12:39And I think that might be one reason why what I released caught fire so much. I was actually shocked at what the response has been just because I think there's a lot of this latent kind of frustration with how things have been going. Oh, no, absolutely. You see with the prediction markets too, which is something, you know, we've been, we've been covering here a lot. But the sports betting, to your point, Just as a casual sports viewer, consumer, it's beyond annoying. It's like I hate having to see this on the screen. I hate having to listen to these commentators try and weave the odds and the spreads into their analysis and their commentary.

13:20But again, that's an annoyance. What we're talking about are the actual real harms that are being done to the bettors themselves, the consumers here. And the sportsbooks, I mean, they actually ban you if you get too good, right? I mean, they'll reduce your limits. They'll close your accounts. And one of the things I was reading that's pretty interesting now is some of the sharpest bettors out there have learned that if they actually simulate compulsive behavior, so if they build a bot that automatically logs into their accounts at odd hours in the middle of the night and reversing withdrawals to make it seem to the algorithm that they're essentially a gambling addict who can't even go a night's sleep without thinking about their bets, then that keeps them in the game and that keeps them getting free money from some of these companies to keep them hooked.

14:11Again, I just go back to the business model. What does it say about a product when the business model requires the customer to lose? Yeah, I mean, to me, it doesn't look that different from like big tobacco, where you're just trying to get customers to be on you, you know, to be buying your product for life. And it's a small share of people, but they're doing it a lot. And so it's not, you know, that's the best analogy I can think of. Right. So the winners are clear, right? The sports books, obviously, these companies are worth a ton of money now, kind of out of nowhere. Also state governments, right?

14:51They've collected$1.5 billion at least in tax revenue so far. And, of course, the media companies, you know, the ESPNs of the world, the NBCs of the world that have these broadcast integrations. They're making their own ad revenue. And then, of course, the leagues themselves, which now are in bed with these sports books. Back to the point that you were just making, a lot of the sportsbook revenue comes from a very small share of heavy users, which is the same pattern that you see in a lot of quote unquote sin industries, right? Whether it's tobacco, cannabis, alcohol, sex work, even. How should people think about like the ethics of a business?

15:32I mean, I just keep coming back to like sort of the same question, but it is the question. A business model structured that way is by definition unethical, in my opinion. Yeah, I mean, you're talking to a pretty strong social conservatist here. You know, I think that the world would be better without a lot of these type of industries. And I mean, it's just a fundamental tradeoff with you want people to have freedom to choose and entertain themselves the way they want. But you don't want that entertainment to have negative impacts on the community. And so it's hard to come up with an optimal mix or rules about how to consume this particular good.

16:18Right. No, and I think that's a good point because to me it's very similar to sort of social media writ large. I think you could make a laissez-faire or even a libertarian argument. It's like, look, we should, you know, people are nobody's forcing you to go and to spend 18 hours a day scrolling Instagram or TikTok or whatever. But at the same time, those companies, we go back to the algorithm all the time on the show because it's the algorithm, right? They build these recommendation engines to hook you in, you know, to if you're a if you're a teenage girl who might be prone to body dysmorphia and Instagram knows that they're going to serve you content that makes you feel bad about your body because that keeps you scrolling.

16:56So like when the behavioral biases are such that they are, it feels like there does have to be some sort of intervention at the government level. But before we get to that, before we get to sort of the policy prescriptions, let's talk a little bit about – a little more about what the research shows. So we spoke a little bit about this already. A study from 2025 found a consumer credit panel of about 7 million Americans found about 10 percent increase in bankruptcy likelihood, 7.5 percent more debt in collections in states that have access to these online betting markets. That translates to about 30 ,000 additional bankruptcies per year.

17:39There's another study of 2024 from Baker et al. Sports betting legalization led to a$53 drop quarterly household investment. That translates to about 14%, growing to over$144 after four years. And crucially, part of that study, traditional gambling was unchanged, meaning that the betting is crowding out savings, not other forms of gambling. Why is that important? I mean, it just helps you to understand what the right policy lever is. So it's really important to know what the substitution effects are or if it's complementary. so that Baker et al. paper is actually pretty amazing because they're able to get transaction-level data so they can see, you know, did you make a transfer from your bank account to FanDuel or did you make a transfer to Robinhood or some other investment brokerage?

18:33And so they can track that crowd out really well. And they can also track, like, are you now buying more alcohol or are you spending more time at the bar because you're betting? and they did find a little bit of complementarity there where having money on the game makes you more likely to consume food or other entertainment. And so understanding that is really important in order to really quantify what's the damage and what can we do about it. And then there was the finding that you mentioned at the top. This is the most sobering one. This is from Arneson and Matsuawa. I probably got their name wrong.

19:12But this is a study. This is a paper out this year in states with legal sports betting, intimate partner violence, domestic violence following an upset loss, six to 10 percentage points higher than in states without legal betting. So basically what they're saying is if you if your team, if you bet on your team and it's losing, there's an uptick in spousal or partner abuse after that loss. Exactly. In areas that are near the home team stadium, roughly speaking. And crucially, they can compare that. So all of these three studies use really reliable, what we call quasi-experimental methods in econometrics, which basically just says I can mimic the conditions of a randomized experiment to know that X is causing Y.

20:05and so basically with this IPV paper they can look at, okay, let's look at an October Sunday in the Dallas area. Texas doesn't have legalized sports gambling right now but we can compare it to an area in Pennsylvania like say Pittsburgh area and the Steelers were supposed to win, they lost and now the rates of IPV are much higher than they were before the PASPA got legalized in Pittsburgh. And then you can kind of do that comparison across the two and across time to really pin down that this is happening because of the gambling legalization. That's incredible. I feel like if you put that to our lawmakers, it would be interesting to hear their response, put it one way.

21:04You also raise an argument in your work that I thought was really interesting and doesn't really get enough attention in this conversation, just about talent. The idea that these sportsbooks are hiring a ton of mathematicians and data scientists, our best and brightest, who might otherwise be doing actually economically productive work. And I remember I sort of growing up, not really growing up, but like when I started getting into the workforce, I noticed this in finance. I noticed a lot of people in my milieu, my cohort, people I went to school with who probably could have done anything they wanted in their lives.

21:42They could have worked for the Jet Propulsion Laboratory and with NASA. But they weren't. They were going into finance and they were going into high-frequency trading. At least there you might argue that there is some sort of value, economic value, that is being produced. In this case, it feels like it's just full extraction, right? Yeah, I agree. A common argument people will make is that, well, what's the difference between playing the stock market or playing the casino? And it's like, well, the money that you give to the stock market is used to capitalize companies and fund business ideas. And so it is a positive sum activity, whereas gambling is negative sum because the house always wins.

22:28And so whatever money the winners that are placing bets make, that's coming at the expense of someone else who's lost. And so it's just a transfer among the bettors and then eventually back to the house in the long run. But getting at your point about career choice, this is something that I don't think anyone's written any papers on, but something that I'm curious about. So if I do kind of foray into primary research on this topic, I definitely would start here. And a lot of it was just driven by me seeing where our students were going. And so before PASPA was legalized, a lot of students would go to professional sports franchises to work in their, you know, for lack of a better word, money ball departments.

23:12Right. And, but working to make that team better through data analytics. Yeah. And I mean, if the ownership of the team wants to waste their money spending, you know, hiring too many money ball experts, that's their prerogative. Sure. But, but then more recently, I've seen more, more of our students go into these gambling type of jobs. And so I just thought that was really interesting and I hadn't seen anyone talk about it so that's why I brought it up. No, I think it's extremely interesting and worrisome. Well, let's talk a little bit about the actual policy or the policy prescriptions here. You lay out a range of options.

23:54What's the strongest case in your opinion for simply requiring, this is what I would do if I were king of America, just require that the sports betting happen in person. I don't think anybody's arguing that we need to make betting illegal, that we need to go back to a sort of like prohibition level of keeping it out of the economy. But you want to restore the friction, right? That to me is the bottom line, the friction that existed before 2018. You want to go bet, by all means, go down to AC, go to Vegas, like do your thing. But it's the frictionless way in which these apps exist that's so predatory in my opinion.

24:35Exactly. Yeah. You couldn't have said it better. You know, we just need to put bounds on it just like we do with alcohol and tobacco. You know, we don't let children go into bars. We don't let certain age people buy cigarettes. And we restrict places where you can smoke. So all of that, I think, is what we should apply to the sports betting market as well. Short of being king of America and us deciding as as co-kings what we're going to do with this. What are some some sort of like actually realistic near term near term reforms? I mean, some of the things off the top of my head would be, first of all, banning mobile sports betting advertising.

25:21It's just it's everywhere. Is there anything else? Yeah, I mean, the advertising should be curtailed. I'll tell you you can't advertise cigarettes right exactly thank you so you can advertise alcohol as we can see so you know there's definitely different gradations there I would say one thing that really annoyed me about a month ago was I was transferring money from my Venmo to my bank account and I got a pop up to instead send the money to FanDuel. And I've never, I've never logged on to FanDuel. I don't know how that happened. Within Venmo. Yes, within Venmo. And that really set me off. And so, you know, we could start with that, you know, don't don't let Venmo or PayPal have some relationship with these sportsbooks.

26:18You know, other ideas would be to just, yeah, restrict the times of day and the places where you can bet. So, you know, you could maybe still have online sports betting, but you have to go to a physical place to pay the bet. And they could enforce that with geolocation technology. I mean, as far as I understand it, there's a lot of effort spent on making sure that people in gambling illegal states can't place bets on FanDuel or DraftKings. And so I suspect that that same technology could be employed to even do it within a state that is legal to just go to a certain place. There was a period a few years ago, I think, where it was legal in New Jersey but not legal in New York.

27:05And there were people who would just take the PATH train over to Hoboken, place their bets, and come back. So, I mean, obviously the technology exists to do that. I like the idea of pairing it with the idea of doing it in person. It's like if you want to bet, okay, you don't have to go to AC. You don't have to go to Vegas. You do have to go to your local sports bar, though, and the bartender is the bookie. It sounds a little bit ridiculous, but it's not actually that ridiculous. I don't think so. It adds in friction, right? It turns it back into a sort of social – if it can't be – it can never be a social good gambling, But it at least turns it into sort of a social experience as opposed to you just on your phone, sitting on your couch, you know, making bets on games that are happening halfway across the world, essentially betting against yourself, right?

27:55Yep, yep. And I will say that I think, you know, this market is still quite small compared to tobacco or alcohol. but it's been growing so quickly that I think that's why people are starting to become alarmed because we all remember, you know, before COVID, this thing just didn't even exist. People were playing daily fantasy sports, which was kind of a precursor to this, but it was just non-existent. And now it's commanding a lot of our attention for better and worse. For worse. Look, and then, you know, again, you see this in the cannabis industry in a state like New York that's recently legalized it.

28:38And there's all sorts of problems. But, you know, there's a big political obstacle, which is that these these sin industries make a lot of money in tax revenues. Right. One point five billion dollars a year just in sports gambling tax revenues last year. the media and the you know these leagues are now embedded in the ecosystem there's obviously a big you know with all that money comes a lot of influence and a lot of lobbying which is the thing that that sort of worries me about this is i it just once once you start bringing in you know we're so starved for tax revenue both federally and at the state level that once you start bringing in easy tax revenue, it's going to be very hard to claw that back.

29:22It's going to be very hard to convince a politician that they can no longer count on X tens of millions of dollars a year that we're coming in without them having to do anything, right? That's right. But at the same time, if you look at what's happening on the negative side, that tax revenue is probably going to be spent in rehabilitation in some form or another. So is it really a net positive is a question that we need to ask? Yeah. No, I mean, again, I think it it it just goes back to this idea of like just it. You're not we're not asking it for it to be people aren't asking for it to be banned.