Summary:
- Online sports gambling became legal statewide in March 2024. Since then, it’s done $2.5 billion worth of business.
- People in states with legal online sports betting have worse financial health- including people who’ve never gambled, as higher loan delinquencies drive up the cost of credit for everyone
- North Carolina should expect a surge in personal bankruptcies from online sports betting in 2027 or 2028
North Carolina legalized sports betting in March 2024. Today, anyone in North Carolina who’s over 18 with a credit card can bet big on games from their own couch – and the response has been overwhelming. According to a new report from the State Lottery Commission, people have answered the call to the tune of $2.5 billion in just the last five months.
Online sports betting means large profits for gambling operators like FanDuel and DraftKings, and it’s also brought in about $50 million in tax revenue for the state of North Carolina. But the full story of online sports betting doesn’t end there. A growing volume of research shows that states that legalize online sports betting are sacrificing the financial health for their residents, even among people who don’t gamble at all. These consequences are leading to financial ruin and human tragedy, particularly for those who can least afford it – but so far, policymakers don’t seem to be paying attention.
The costs of legalized gambling
Peer-reviewed research has begun to show that, following the legalization of sports gambling on the state level, negative financial consequences arrive in a generally predictable pattern.
Within two years of a state legalizing online betting, average rates of personal bankruptcy begin to rise. After three years of online betting, a state’s bankruptcy rates go up by between 25%-30%. In North Carolina, that works out to about 2,000 additional households per year losing their homes, security, and more, just because a family member who may have not previously had a gambling problem developed one.
Other negative financial impacts abound. As seen in the chart above, the amount of consumer debt in collections rises dramatically just two to three years after legalization. Other research has shown that credit card debt goes up, especially for households that are already lower-income. Delinquency rates on credit cards and auto loans also go up. That pushes up the cost of routine credit even for those who don’t gamble. Some gamblers take out more and riskier loans against their homes and cars to manage their gaming debts. Others turn to payday loans, loan consolidation, and other predatory, high-interest financing.
Common sense guardrails
Policymakers are not powerless to accept the worst excesses of legalized sports gambling. In other states, lawmakers have introduced some common sense guardrails to protect consumers. These include:
- restricting bets over $1,000 to qualified betters who can afford such losses
- limiting or prohibiting bets on games in progress
- halts on betting between midnight and 8AM
- limits on how many bets an individual can place per hour
- a confidential and voluntary self-exclusion list that people can put themselves on if they struggle with gambling problems
These measures don’t stop anyone from making casual wagers that, for some, make games more interesting. But they do slow down compulsive gambling that puts people’s financial health most at risk.
Tax policy also plays a part. Currently, North Carolina levies a comparatively low 18% tax rate on gambling companies’ revenues. This is quite low compared to other states: Tennessee’s tax rate on online sports betting is 19.7%, Ohio’s is 20%, Pennsylvania’s is 36%, and both New York and New Hampshire are at 51%.
The usual arguments against high taxes on businesses are that they can limit business growth, and thus threaten jobs and investment. But these arguments don’t neatly apply to the online gambling industry. Online gambling is an extremely high-margin industry that produces big social costs (eg. externalities). Gambling operators rake in millions or billions of dollars with comparatively little overhead, and don’t produce the kinds of jobs or business investment that other firms do.
Higher taxes for online gambling are also unlikely to hinder economic activity. Online gambling is unlike agriculture, manufacturing, construction, research or other industries that are economic multipliers. Firms in these industries build up their local economies by reinvesting much of their revenue into things like transportation, buildings, supplies, and especially employees. High taxes on businesses can cut down this multiplier effect.
But none of this applies to online gambling, which has little to no economic multiplier effect. Online betting doesn’t need buildings, employees, trucks, or supplies. Economically, gambling is a dead end. Higher tax rates for gambling operators will not hurt the rest of North Carolina’s economy.
Finally, online sports gambling comes with large, predictable and observable costs that are born by others. Widely legalized gambling drives up the cost of credit for everyone: the price of car loans, day-to-day credit card transactions, and everyday cost of living for all North Carolinians. Uncontrolled online sports betting also brings a surge in debt, interest costs, payday loans, and bankruptcies. At its worst, large-scale gambling can wreck lives and throw even more uncertainty into the economy.
The clock is ticking
North Carolina is about to reach the one-year mark after legalizing sports betting – the point when the financial fallout from gambling legalization starts to appear. If patterns from other states hold, North Carolinians can expect a surge of bankruptcies to arrive in 2027 and 2028.
There’s no time like the present. Gambling interests have invested millions in campaign donations and lobbyists to encourage North Carolina lawmakers to legalize gambling. With $272.8 million in direct revenue in just a few months, those investments have clearly paid off handsomely for the gambling industry. Installing basic guardrails to protect North Carolina consumers is the right thing to do for the people of our state, even for those who enjoy a casual wager with friends.
