States Look to Mobile Sports Betting for More Promising Revenue Collections

May 14, 2021

By Jackson Brainerd, senior policy specialist, National Conference of State Legislature’s Fiscal Affairs Program

In just two and a half years following the Supreme Court’s decision to end the near-nationwide prohibition on sports betting, more than half of the country has taken action to legalize it. Sports betting is currently being offered in 21 states and the District of Columbia. It is legal but not yet operational in another six. A handful of states—including North Carolina, New Mexico and Washington—do not have state-approved gambling but have worked with Native American governments to authorize it at tribal casinos Intrastate mobile sports betting has been implemented or authorized in 17 states, D.C. and Puerto Rico, so bettors can place bets from their phone or computer.

The speed with which states have jumped on the sports betting bandwagon is due in part to public enthusiasm. Gambling industry research estimated that 13% of Americans would place wagers on 2020 NFL games, if given the opportunity, and almost $50 billion has already been wagered at sportsbooks, or operators who accept bets, nationwide since the prohibition ended. The eye-popping numbers associated with the sports betting market have been particularly appealing from a state revenue standpoint. 

Experts have noted from the outset, however, that sports betting is a relatively low-margin venture compared with other types of gambling and is unlikely to yield a true windfall. Most wagers received are paid out in the form of winnings; nationwide, the average hold (pretax operator profit) for sportsbooks is just 7.2% of the total amount wagered. In New Jersey, the most productive sports-betting state to-date, the first full year of sports wagers brought in less than 5% of the revenues generated by the state lottery. In Pennsylvania, another large betting market, the tax revenue generated by sports betting in Fiscal Year 2020 was just 3.6% of total casino tax revenue. If sports betting legalization follows previous gambling expansion trends, states can expect a short-term, modest increase in revenue that will eventually plateau as neighboring states create competition as they adopt and establish markets, too. 

Nevertheless, the potential tax dollars have been a central selling point for legalizing sports betting in many states and preliminary evidence suggests that mobile gaming available from remote devices like cellphones and laptops will likely offer a more productive revenue stream for states looking to shore up their budgets around the margins. Of course, there are potential difficult-to-measure costs to weigh, too. Lawmakers have expressed concerns that making gambling opportunities available online could lead to higher rates of gambling addiction and destructive personal financial decisions.

These concerns, however, haven’t seemed to be a significant impediment to mobile gaming. This is likely true because the relatively higher revenue potential of mobile gaming already seems evident in some regions. For example, New Jersey, an early adopter of mobile betting, brought in $49.4 million in new tax revenue in calendar year 2020 and mobile betting accounted almost 95% of the total amount wagered in the state. In Pennsylvania, the state brought in $38.7 million in state tax revenue in Fiscal Year 2020, three-quarters of which was attributable to mobile sports betting. Meanwhile, neighboring New York initially only authorized non-mobile gambling and brought in barely over $1 million in all of calendar year 2020. 

These instances of income-producing mobile gaming are persuasive, but they’re not necessarily conclusive. In Mississippi, which does not have statewide mobile gaming, tax collections for FY 2021 to-date are $6.6 million. By contrast, Iowa, which has legal mobile operations and a comparable population, has collected less: $4.6 million. 

Similarly, sports betting in Delaware has generated more tax revenue ($13.2 million) than in Rhode Island ($11.4 million) through March of FY 2021, even though Rhode Island has legalized mobile gaming and Delaware has not.

 This picture could shift over time, however. Both Rhode Island and Iowa recently repealed requirements that gamblers register in-person at casinos to set up a mobile gaming account. This policy is intended to help prevent underaged gaming or other unauthorized users, but there could be a revenue trade-off: Gaming industry research suggests that prospective gamblers find in-person registration to be inconvenient and even prohibitive in some cases. Illinois and Nevada currently have similar requirements in place.

States have largely approached mobile sports betting in isolation from other forms of gambling, but it seems possible that its rapid proliferation could lead more states to consider legalizing other kinds of internet gambling, which have a greater revenue potential. Only seven states currently allow lottery tickets to be sold over the internet, and just six states and the U.S. Virgin Islands have legalized online casino gambling. As more states adopt mobile sports betting, this inconsistency could help online gaming proponents make the case for lottery tickets that can be purchased from cell phones. 

The legal gambling industry’s slow embrace of the internet, despite a sizable online gambling black market, is due in part to fears that online gaming would rob brick-and-mortar casinos and surrounding establishments of visitors and revenue. This fear appears to be dissipating, and many stakeholders are now pointing to evidence that internet gambling will actually help casinos appeal to a broader market. All bets are off on whether there will soon be another sea change as a result.