America’s Sports Betting Boom Is About to Backfire
America’s Sports Betting Boom Is About to Backfire For every dollar in gambling tax revenue, U.S. states spend under a penny on problem gambling. The gaming industry spends even less. Millions of gamblers are at their mercy.
Playing the ponies is one of many Kentucky Derby traditions and rituals, alongside pastel pinks and feather fascinators. The gates open at 9 a.m. on the first Saturday of every May. By 10 o’clock two commentators appear on enormous screens to run through the odds and their picks for the day’s 14 races. In between events, an announcer’s baritone booms over the PA system: “If you don’t bet, you can’t win!”
This year, for the second time, Toby Coggins and his sister made the pilgrimage to the Churchill Downs raceway from College Station, Texas. Leaning against a wall near a complimentary cocktail booth, Coggins scrolls through the in-house betting app advertised on billboards around the track. He doesn’t usually gamble. “I’m just not a big risk taker,” he says. “But here it’s all part of the fun.”
About a quarter of Kentuckians placed bets on horses in 2021, according to an Ipsos survey. Today, those gamblers have far more options. In September 2023, Kentucky became the 38th U.S. state with legal sports betting.
Sports wagers, mostly placed through smartphones, have already trampled the state’s horse bets.
In the 12 months after Democratic Gov. Andy Beshear placed the state’s first legal sports bet—a $20 parlay on Kentucky college football—Kentuckians wagered $2.4 billion on sports. Bets on horse racing fell 8% to $196 million.
The betting trend has played out much the same way across the U.S. Americans now wager roughly $150 billion a year on sports, and 48% of American men under 50 have an account on a digital sportsbook at sites like >DraftKings, FanDuel, ESPNBet, and BetMGM, according to a Siena College survey.
The wagers have generated a surge of new interest in professional sports leagues. State coffers are being filled with new tax receipts, and struggling media companies are stuffing commercial breaks with ads for betting apps. It’s all part of a national gambling honeymoon in the wake of a 2018 Supreme Court ruling that cleared the way for nationwide sports betting.
But addiction experts say a public-health time bomb is ticking. Gambling on smartphone apps carries higher addiction risks than traditional wagers like those at casinos and horse tracks, according to the Journal of Behavioral Addictions . Internet search queries related to gambling addiction “have consistently increased year over year since 2021,” a recent study in the Journal of the American Medical Association found.
It takes around seven years for someone with a gambling problem to first present for treatment, experts say, meaning a wave of problem gamblers have yet to identify themselves. When they do, the healthcare system is sure to be overwhelmed. Kentucky has five counselors certified to treat an estimated 60,000 problem gamblers, according to the state’s problem gambling council. Nationwide, there’s no accurate count of gambling counselors and no universal standard for certification.
U.S. states raked in $14.4 billion worth of gambling tax revenue in 2023, according to the National Association of Administrators for Disordered Gambling Services, and allocated $134 million of that revenue to gambling addiction services. For every dollar states made from gambling, less than a penny went to addressing its harms.
Gambling addiction affects millions of Americans, and research shows it’s associated with higher rates of suicidal thoughts, domestic violence, child neglect, social isolation, economic insecurity, substance abuse, unemployment, homelessness, and crime.
Since 1996, the Kentucky Council on Problem Gambling has used privately raised funds to produce public service announcements and train local operators at the 1-800-GAMBLER hotline, which directs callers to treatment resources like Gamblers Anonymous. For years, though, the council struck out on its main goal to get state funding for problem gambling services—what Executive Director Mike Stone called “a 23-year quest of advocacy.”
It took an expansion of state-sanctioned gambling for that funding to materialize.
After four years of back and forth, Kentucky in 2023 passed a bill to legalize sports betting beyond thoroughbred racing. To win over a group of holdouts in the state Senate, lawmakers added a problem gambling assistance account to the legislation. It earmarked 2.5% of the state’s new gambling tax revenue to fund workforce training, treatment, and research. The remainder goes to the state’s pension fund for public employees.
DraftKings, FanDuel, and BetMGM were among the gambling firms that advocated for the bill. In total, the industry spent $443,000 lobbying the Kentucky legislature in 2023, state records show.
DraftKings was enthusiastic about the bill’s passage. In August 2023, the company boosted its revenue outlook for the year, calling out $20 million in new revenue expected from Kentucky in the final three months of the year. Soon after, DraftKings told investors it had signed up more than 5% of Kentucky’s adult population within five weeks of going live in the state.
The grants from the problem gambling fund moved slower.
After the Kentucky bill passed, Stone says he “immediately got phone calls and folks saying, ‘Well, what are you going to do with all this money?’” he says with a laugh. “My response was, ‘What money?’”
The fund currently has $1.8 million, but disbursement has been slowed by red tape. Every dollar distributed from Kentucky’s gambling fund requires a grant request, extensive paperwork, and a public comment period lasting up to 120 days, an arduous task for any administrator.
The 2023 law includes a clause that caps administrative spending at $50,000, so Kentucky’s system hinges on one part-time worker—despite an expected explosion of problem gamblers in the coming years. “They just flat don’t have the money to fund a full-time person,” Stone says. It took the fund 13 months to fill its first grant.
In the Kentucky town of Owensboro, 83 miles west of Churchill Downs, RonSonlyn Clark has been treating people with gambling disorders for more than two decades. After 10 years as a substance abuse counselor, Clark took a problem gambling training course in 1998. She was surprised by how often gambling came up at the battered women’s shelter where she worked. Studies that around a third of problem gamblers have been victims or perpetrators of intimate partner violence.
Today, she trains gambling counselors in Owensboro and at Indiana University, sits on the board of an international organization that licenses gambling counselors, and works alongside Stone as president of the Kentucky Council on Problem Gambling.
She says her career has been a battle against the public’s dismissal of gambling issues. Pathological gambling was first classified as a mental disorder in 1980 by the American Psychiatric Association. The public view still hasn’t caught up with the science, though, Clark says.
“There’s a whole lot of people who think it’s a moral issue. Why should we care?” she says. “They don’t understand it’s brain chemistry.”
In Kentucky, gamblers’ shame is at odds with state pride around the country’s most iconic betting event.
“When you think of the Derby, you think of beautiful hats, stately horses, mint juleps, pageantry, pomp and circumstance, and the fun that’s involved,” Clark says. “You don’t think of somebody out back getting ready to shoot themselves because they bet $10,000 on a horse and they’re not going to be able to make their house payment.”
fan marks up a program ahead of the 151st running of the Kentucky Derby at Churchill Downs on May 3 in Louisville. As more Kentuckians wager on sports, horse betting in the state is slipping.An 11-year study ending in 2016 found that one in five people with a gambling disorder had attempted suicide. The National Council on Problem Gambling estimates 1% of American adults, or 2.5 million people, meet the criteria for disordered gambling.
The federal government, which collected roughly $370 million in federal excise tax on sports gambling last year, has no programs in place for that group. The U.S. Substance Abuse and Mental Health Services Administration, by contrast, has an annual budget of $7 billion.
The disparity has caught the attention of a few U.S. lawmakers. “I think that the federal government has a right to say, let’s use this to make people healthier,” Rep. Andrea Salinas (D., Ore.) says of the taxes collected on gambling. Last year, she co-sponsored a bill called the Gambling Addiction Recovery, Investment and Treatment, or GRIT, Act, which would shift 50% of those funds to problem gambling treatment and research.
It stalled in Congress. The gambling industry spent $39.2 million on federal lobbying efforts in 2024, according to OpenSecrets.org. “They have come out hard against this bill,” Salinas says.
The American Gaming Association says its opposition to the bill stems from the underlying excise tax that would fund the problem gambling initiatives.
“The AGA opposes the GRIT Act and supports bipartisan legislation, the Discriminatory Gaming Tax Repeal Act of 2025, that would repeal the excise tax on legal sports betting operators to ensure we can effectively migrate Americans into the protections of the regulated market,” Chris Cylke, senior vice president of government relations at the American Gaming Association, said in a statement.
The AGA points to $472 million in responsible gaming expenditures like customer service, education, and research that its members make annually. That total is 0.7% of the industry’s revenue last year, which came to $71.9 billion. States, by comparison, spent 0.9% of their gambling tax revenue on problem gambling initiatives.
As the debate unfolds in Washington, sports betting is on the rise. This year, Wall Street expects DraftKings to generate $6.3 billion in revenue, up from $432 million in 2019. It operates sports books in 25 states, plus the District of Columbia.
Rival FanDuel, owned by U.K.-based Flutter Entertainment, is forecast to have sales of $16.9 billion this year, up from 2019’s $2.8 billion. It’s in 22 U.S. states and D.C.
The stocks have been smart bets. DraftKings shares are up 156% over the past three years, while Flutter has risen 108%. The S&P 500 index has gained 48% over the same period.
FanDuel says it hasn’t conducted lobbying activities around the GRIT Act. “FanDuel is an industry leader in responsible gaming,” a company spokesperson says. “We are also highly supportive of gaming tax funds being used for responsible gaming research and consumer protection in many of the states in which we operate.”
DraftKings didn’t respond to requests for comment.
Without federal oversight of gambling, states have been left to fend for themselves, particularly when it comes to public health. “There’s no playbook,” says Jeff Marotta, a clinical psychologist who has spent three decades consulting with states to develop problem gambling services.
While states are gradually increasing their problem gambling budgets, the work has been slow. As of 2024, the median state funding level for problem gambling was $1.9 million, according to a survey Marotta conducted for the National Association of Administrators for Disordered Gambling Services. Massachusetts is a standout with a $30 million problem gambling budget, while eight states provide no funding at all.
The challenge for policymakers trying to regulate gambling is its almost magical benefits to state coffers.
Gambling is “a very effective way to get more state budget without having to raise taxes,” says Heather Wardle, a professor of gambling research and policy at the University of Glasgow. Once gambling revenue is supporting pension funds, infrastructure, and other state priorities, Wardle says, “it’s very hard to then roll back from that.”
In Kentucky, Stone’s problem gambling council dealt with that challenge for years. “We would be taking money away from some other program,” Stone says state legislators regularly told him.
The dynamic was a topic in last year’s Commission on Gambling, organized by the Lancet, the international medical journal. “While governments readily appreciate revenues from the gambling industry and might even use gambling products for their own fund-raising purposes, they generally underestimate the prevalence and seriousness of social harm done and the associated public costs,” the commission reported.
To Kentucky lawmakers, though, their citizens were already facing gambling’s harm. As of 2023, sports betting was legal in most of its neighboring states, meaning Ohio, Illinois, and Virginia were generating gambling revenue off Kentuckians. “So why forgo that revenue when the ills already come with it?” says state Rep. Michael Meredith, who sponsored the bill to legalize sports betting in Kentucky.
It was a winning argument—but maybe not for the state’s public health.
“That can’t be a healthy system, particularly when we know that the way the industry generates its profits is disproportionately relying on those who are harmed,” says Wardle, who co-chaired the Lancet’s project.
A study in the Journal of Gambling Business and Economics found that 5.7% of U.S. sports bettors generate 80% of sports betting revenue. That ratio roughly holds across sales in the alcohol, tobacco, and marijuana industries. Researchers say this “addiction surplus” has motivated industry players to prevent public-health initiatives tied to reducing consumption.
Across the country, the programs that do exist have often been met with little interest, Marotta says, because of a dated approach.
“The place where states really struggle is they equate the needs to address gambling issues among their population like they do with other addiction issues or mental health issues,” he says. Problem gambling treatment is “a different business model.”
Promoting the treatment is as important as the treatment itself, Marotta argues. “These folks that have gambling issues don’t tend to just show up for treatment,” he says. “So there needs to be an effort to be more proactive and go out there and do outreach and market your services.”
Until then, the programs are stuck in a continual effort to get off the ground with disappointing impact. In the end, Marotta says, policymakers “don’t see the numbers they expect, they reduce the funding or they gut the program.”
In 2019, Washington, D.C., allocated $200,000 to problem gambling initiatives when it approved sports betting in the District. Four years later, gambling tax revenue reached $5.4 million and D.C. cut its problem gambling budget to zero.
https://www.barrons.com/articles/sports-betting-gambling-addiction-horse-racing-f51b151b