Paul's 'PGRI AI Labs' Regulating Gambling in America, Part 2: Real World Regulatory Models

Here is Part 2 of our series, moving from policy frameworks into real-world regulatory models across U.S. states, with analysis of strengths, weaknesses, and underlying policy logic.

Regulating Gambling in America Part 2: Comparing State Regulatory Models — What Works, What Doesn’t, and Why  If Part 1 established that gambling regulation is fundamentally a public policy exercise—balancing expansion, revenue, social responsibility, and who benefits economically (i.e. the state or private commercial interests) , then Part 2 is where that theory meets reality.

Across the United States, those same policy questions have produced markedly different regulatory frameworks. These differences are not random. They reflect deliberate choices about taxation, competition, control, the role of government, and the influence of commercial operators. The result is a patchwork of models that provide a living laboratory for understanding what works, what doesn’t, and under what conditions. Several distinct approaches have emerged. The High-Tax, High-Control Model: New York New York’s mobile sports betting market is perhaps the most widely discussed example of a high-tax, high-control framework. The state allows multiple operators but imposes a tax rate of approximately 51% of gross gaming revenue (GGR: revenues after paying out player winnings).

Policy logic: Maximize state revenue while maintaining strong oversight and limiting excessive operator profits. Strengths:
· Generates substantial and predictable revenue for the state.
· Maintains political defensibility by demonstrating that the public captures a large share of economic value.
· Potentially limits the extent of promotional “arms races” among operators. Weaknesses:
· Constrains operator margins, reducing incentives for innovation and long-term investment.

· Typically results in lower RTP (Return to Player) for consumers, weakening the value proposition.
· May discourage smaller or emerging operators from entering the market. New York illustrates the “restraint” side of the policy spectrum: the market is allowed to exist and grow, but under conditions designed to ensure strong public capture of value and controlled expansion. The Competitive Market Model: New Jersey At the opposite end of the spectrum is New Jersey, which has adopted one of the most open and competitive regulatory frameworks in the country. Multiple operators compete across sports betting and iGaming, with relatively moderate tax rates compared to New York.

Policy logic: Encourage market growth, innovation, and consumer engagement through competition. Strengths:
· High levels of consumer participation driven by competitive pricing and product innovation.
· Strong operator investment in technology, marketing, and user experience.
· Significant total market size, even if per-dollar tax yield is lower. Weaknesses:
· Lower tax rates mean less revenue capture per dollar wagered.
· Intense competition can lead to heavy advertising and promotional spending, raising political and social concerns.
· Greater reliance on operator self-discipline and regulatory oversight to manage risks.
· All of which leads to maximum expansion of gambling New Jersey represents the “expansion” model: maximize total engagement and market activity and allow competition to drive growth, with regulation focused on oversight rather than constraint. The Lottery-Controlled Model: Rhode Island and Beyond Some states have chosen to integrate newer forms of gaming—particularly sports betting—into existing lottery structures. Rhode Island is a leading example, where the state lottery plays a central operational and regulatory role.

Policy logic:

Leverage the legitimacy, infrastructure, and public trust of the lottery to control and manage new gaming activity. Strengths:
· High degree of government control and revenue capture.
· Simplified regulatory structure with fewer operators and centralized oversight.
· Strong alignment with Responsible Gaming objectives, player protection, public policy goals, and political acceptance. Weaknesses:
· Limited competition can reduce innovation and consumer choice.
· Slower product evolution compared to competitive markets.
· Potentially less attractive consumer experience, particularly for digital-native players. This model reflects a continuation of the traditional U.S. lottery philosophy: government as operator, with a focus on stability, control, constraint of gambling growth, and public benefit. The Hybrid Model: Maryland and Others A growing number of states are adopting hybrid frameworks, blending elements of commercial competition with lottery oversight or regulatory involvement. Maryland, for example, incorporates both commercial operators and strong regulatory structures, with the lottery playing a role in governance. Policy logic: Balance market-driven innovation with effective public oversight and accountability.

Strengths:
· Allows for competition and innovation while maintaining strong regulatory control.
· Provides flexibility to adjust policy over time.
· Can strike a middle ground between revenue generation and market growth. Weaknesses:
· More complex to administer, with overlapping responsibilities.
· Potential for regulatory ambiguity or inefficiency.
· Requires high levels of coordination between agencies. Hybrid models reflect an attempt to reconcile competing priorities rather than choosing one side of the spectrum outright.

The iGaming Divide: Legal in Some, Prohibited in Most Perhaps the most striking contrast in U.S. regulation is the uneven adoption of online casino-style gaming (iGaming). A handful of states, most notably New Jersey, Pennsylvania, and Michigan, have legalized and regulated iGaming, while the majority have not. Policy logic (pro-legalization states):
· Capture significant revenue from a high-margin product.
· Channel consumer demand away from illegal operators and into safer regulated environments.
· Leverage digital platforms for long-term growth. Policy logic (non-legal states):
· Concerns about problem gambling and social impact.
· Political sensitivity around casino-style iGaming.
· Desire to protect existing land-based casinos and/or lottery revenues. Strengths of legalized iGaming:
· Generates substantial and growing revenue streams.
· Offers a highly competitive and engaging consumer experience.
· Provides regulators with visibility into player behavior through data.
· Connects with the expanding audience of consumers who seek online entertainment options. Weaknesses:
· Heightens concerns around problem gambling due to accessibility and intensity.
· Requires robust responsible gaming systems and regulatory oversight.
· Faces ongoing political and public scrutiny.

· The iGaming divide underscores how differently states evaluate risk, opportunity, consumer protection, and public acceptance. What These Models Reveal Taken together, these frameworks highlight several important insights.

First, there is no single “optimal” regulatory model. Each approach reflects a different weighting of policy priorities: revenue versus growth, control versus competition, simplicity versus innovation, player protection versus free-market expansion.

Second, tax policy is not merely a fiscal decision, it is a structural one. It shapes RTP, operator behavior, consumer engagement, player protection, and ultimately the size and sustainability of the market.

Third, the role of government—operator, regulator, or partner—remains a defining variable. States that rely on lotteries emphasize control and legitimacy. States that license multiple commercial operators emphasize market dynamics. 

Finally, regulatory frameworks are not static. States continue to adjust their models as markets mature, technology evolves, and new business models emerge and they respond to new data, political pressures, and evolving consumer behavior. Looking Ahead As the U.S. gaming market moves further into the normalization phase described in Part 1, the differences between these models will become even more instructive.

Which systems prove most sustainable? Which generate the best balance of revenue and social outcomes? Which maintain public trust while supporting innovation? Which protect the consumer and minimize problem gambling? These questions will shape the next phase of regulatory evolution. In Part 3, we will examine how regulatory frameworks are likely to evolve as markets mature, scrutiny increases, and policymakers seek more deliberate and durable approaches to managing gambling in the United States.