Daniel Sutter: Should Alabama bet on sports betting?

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Daniel SutterThe U.S. Supreme Court ruled last May that states could legalize sports betting. New Jersey, Delaware, West Virginia and Mississippi have joined Nevada in offering legal sports betting, and about twenty other states have taken steps toward legalization. Should Alabama join this crowd?

The size of the sports betting market is one argument in the affirmative. We lack accurate statistics on the current largely illegal U.S. sports betting market. A 1999 Congressional study estimated that Americans bet between $80 and $380 billion annually, while pro and college football betting has recently been estimated at $100 billion. A study by Oxford Economics for the American Gaming Association estimated that nationwide legalization and mobile betting could result in a $300 billion a year market.

Most of the bets are paid out to the winning gamblers, but book makers keep some for expenses and profits. Legalization brings this gaming revenue out of the black market or back from off shore casinos to support jobs in states legalizing betting. Oxford Economics projects that nationwide legalization could create 90,000 jobs and annual tax revenue of $8 billion, through taxes on gambling and taxes paid by now legal employees.

Without legalization, Alabama will not share in these jobs and tax revenues. Alabama sports bettors’ money will support businesses and government services in other states.

While jobs and tax revenue are nice, prosperity ultimately involves providing goods, services, and activities people want. Jobs from value-creating businesses – those providing the most desired goods and services – create economically thriving communities. Alabama will miss out on a value-creating industry by not legalizing sports betting.

But does sports betting truly generate value? A skeptic could point out that gambling is a zero-sum game (the losses cancel out wins) and creates no products. Yet millions of people value having action on games and get satisfaction from their winning bets. People willingly place bets they know they might lose. Economists call such satisfaction utility. All economic activity beyond sustenance and survival is about generating utility by providing people with things they want.

Why do people enjoy betting? Economists leave such questions to psychologists. The exclusively voluntary nature of market activities excludes predatory activities from value creation. Everyone must either want to participate (place bets) or be compensated to participate – say cleaning up the sportsbook at night. Sports betting passes the voluntary participation test.

Sports betting’s biggest negative is the problem gamblers who lose more than they can afford, resulting in bankruptcy and devastating families. This is most unfortunate, but are problem gamblers better off with prohibition? People have long been able to bet illegally, with online betting only making access easier. Prohibition, however, makes problem gambler’s difficulties worse. Legal sportsbooks will not break legs to collect debts; indeed, it will not be profitable to let gamblers make bets they cannot pay off. Regulations on legal betting can help protect problem gamblers from themselves and ensure help is available when wanted.

The increased betting volume from legalization increases the risk of gamblers paying players to fix games. This is a real threat: the “Black Sox” scandal nearly ruined major league baseball, and college players who will never play professionally might find gamblers’ dollars very tempting. NBA Commissioner Adam Silver proposed that an integrity fee on all bets, with leagues using the proceeds to guard against illicit deals.

Sportsbooks, though, already have a strong incentive to protect the integrity of games. A $300 billion a year betting market will generate significant profits for years to come provided the public does not view the contests as rigged. Sportsbooks also will not want to pay off rigged bets. Suspicious betting patterns and statistical analysis can help identify rigged contests. Scandals will undoubtedly occur, but cooperation between sportsbooks, the leagues, and law enforcement should keep the contests legitimate.

Jobs, taxes, and losing both to neighboring states are all worthwhile considerations. But I think that the most compelling argument is the freedom to engage legally in an activity many Alabamians value. Despite the benefits, I wouldn’t bet on Alabama legalizing sports betting anytime soon.

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Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

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