Sports Betting on the Rise as States Let Gamblers Wager Online

From office pools to casinos to online betting apps, March Madness entices sports enthusiasts and casual viewers alike to predict a winner of the annual NCAA college basketball tournament.

Sports betting in casinos or racetracks is now legal in 38 states and Washington, D.C. And that number keeps growing. As of this month, six more states—Alabama, Georgia, Hawaii, Minnesota (tribe managed), Missouri and Oklahoma—had measures pending to authorize sports betting.

Related: March Madness Brings On the Bets

Some states have made betting even easier: 27 states with legal sports betting have also authorized online sports betting (with legislation currently pending in Mississippi). Online sports betting opens the door to much bigger audiences because users can bet from a computer or mobile device anywhere in the state.

While sports betting expanded quickly after the U.S. Supreme Court eliminated the federal prohibition in 2018, it’s not quite the wild west, as states have established some regulations.

For example, some states restrict which sporting events are subject to bets. All states prohibit wagering on high school sports, but college sports betting is regulated differently in every state. Some states prohibit betting on all college sports and athletic events, while others only prohibit betting on in-state teams. Other states have no restrictions on college sports betting.

Here are details on how states regulate:

• Blanket prohibition on all college sports and athletic events: Oregon and Tennessee.
• Prohibition on in-state teams and in-state college events: D.C., New Hampshire, New Jersey, New York, Rhode Island** and Vermont.
• Prohibition on in-state teams: Connecticut, Delaware, Illinois, Iowa, Maine, Massachusetts*, South Dakota**, Washington and Wisconsin.
• No restrictions: Arizona, Arkansas, Colorado**, Indiana, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi**, Montana, Nebraska, Nevada, New Mexico, North Carolina, Ohio, Pennsylvania, West Virginia and Wyoming.

*Massachusetts allows betting on in-state teams when those teams are participating in a tournament.

**Rhode Island, South Dakota, Colorado and Mississippi also prohibit proposition bets on college sports and athletic events. So-called prop bets are side wagers that have nothing to do with the outcome of an event, such as wagering on the first team to score, or even the length of the pregame national anthem.

Lottery-Run Sports Betting

Lottery commissions in several jurisdictions—Washington, D.C., Montana, New Hampshire, North Dakota, Oregon, Tennessee, Virginia and Wyoming—partner with private operators to offer sports betting. In the district, the lottery commission offers its own sports betting product in addition to partnering with private operators.

Does Sports Betting Pay Off?

States generate revenue from sports betting by taxing winnings. Tax rates on sports betting range from 6.75% in Iowa to 51% in New York and Rhode Island. A few states levy different rates on retail and online wagering. Retail gaming operators expressed concern that online gaming would siphon off casino and racetrack customers and hurt their bottom lines. In response, policymakers in some states created a two-tier tax structure to give retail sports betting a lower tax rate. While most states have a flat rate for sports betting revenue, Arkansas and Mississippi use graduated tax rates, and Vermont imposes different rates on the three different sports betting operators. (For current state tax rates, see March Madness Brings On the Bets.)

Since the legalization of sports betting, states have collected hundreds of millions of dollars in tax revenue. Most of that has come from online sports betting because people who don’t frequent casinos can get in on the action through a mobile app or website. And more betting means more revenues.

Take Arkansas and New York, for instance. Both states expanded sports betting to include online wagering in 2022. The next year, tax collections doubled in Arkansas, with revenues going from less than $2 million in fiscal year 2022 to over $4 million in fiscal 2023. Similarly, New York collected less than $2 million in tax revenue during the first nine months of fiscal 2021; after online sports betting began in the last three months of fiscal 2021, revenue collections jumped to $163 million. The large increase in collections is due in part to the 51% tax rate on online sports betting.

The experience in other states is similar. In fiscal 2023, online sports wagering made up 92% of gross wagering receipts in Indiana and 89% of gross receipts in Pennsylvania.

However, tax revenue generated from sports betting is just a fraction of the gaming pie compared with total casino revenue. According to the American Gaming Association, commercial gaming operators contributed over $14.4 billion in gaming taxes in 2023, compared with $2.1 billion from the sports betting industry.

Where Does the Money Go?

Sports betting provides a steady source of income for states, but it’s not without costs.

Gambling addiction is a problem exacerbated by easier access to sports betting. In response, lawmakers in 14 states and D.C. earmark a portion of sports betting revenue for problem gambling treatment. Other common recipients of betting revenue include education programs, local governments and workforce development programs. Many states deposit the revenue into their general funds and allocate the funds where they see fit.

See the report March Madness Brings On the Bets for a detailed look at how states allocate sports betting revenues.

Andrea Jimenez is a policy associate in NCSL’s Fiscal Affairs Program.