Gambling Spillovers: Evidence from Online Sports Gambling and State Lotteries
Between 2018 and 2023, 27 states opened online sportsbooks. The paper asks what happened to state lottery sales, which pay for schools and other public programs.
Where online sports betting opened, month by month
Abstract
Policymakers have been quick to legalize access to online sports gambling (OSG) platforms: 30 states and the District of Columbia now have some form of OSG. We assess the state fiscal benefits of this policy by examining how OSG impacts demand for state lotteries, an alternative gambling market and a crucial source of funding for public programs. Leveraging the staggered adoption of OSG across states, we analyze changes in lottery demand using a county-level lottery sales dataset across 17 states plus DC and a separate transaction-level dataset covering 80% of all independent convenience stores in all 50 US states. We find consistent evidence that OSG significantly reduces state lottery demand, with sales declining by 5.4% to 6.2% in the 16 months following implementation. Because of reduced demand and the initial sports gambling tax policy, our set of 17 states plus DC incurred a cumulative loss of $148 million in state revenue following OSG implementation. Analysis of individual states shows that early adopters (New Jersey and Pennsylvania) experience significant revenue losses, while most other states break even. Reduced demand is likely due to lower lottery purchasing intensity, as consumers shift a larger share of their budgets toward OSG. For state policymakers, these results challenge the notion that OSG is a fiscal windfall.