The legalization of sports betting was “slightly positive” but “largely a wash” for the Massachusetts economy in its first year, a researcher from the UMass Donahue Institute told gambling regulators Thursday as he also flagged signs that its growth is eating into the state’s casino tax revenue.
The primary economic benefit from sports betting in 2023 was the tax revenue it generated for state government — $90.8 million in the first year of legal wagering here. But other than that, Donahue Institute Research Manager Thomas Peake told the Gaming Commission on Thursday, the launch of the largely-mobile industry created “very, very, very few” new Massachusetts jobs (a net addition of 118 jobs from legal sports betting compared to a net addition of 15,431 jobs from the introduction of casinos) and comparatively scant in-state spending.
“This early research on sports wagering shows that, in every respect, the positive impacts to the Commonwealth generated by this new industry are dwarfed by the positive impacts generated by other forms of gambling in the state. Casino gambling remains by far the larger driver of economic activity in Massachusetts,” the Gaming Commission said in its summary of Peake’s research, which focused on 2023. “While the amount of money wagered, won, and lost in sports betting is significant, the legalization of sports betting has not led to significant new levels of employment in the Commonwealth, and mobile operators spent about 4% of payments overall on Massachusetts businesses in contrast to 45.8% of payments by casinos.”
Meanwhile, the researcher flagged for gambling regulators that sports betting appears to have started to take away from what had been spent at the state’s physical casinos, which support thousands of jobs and spend millions for goods and services from local companies. That impacts how much tax revenue the state collects.
Casino revenues declined by 0.9% in fiscal year 2024 (which included the second half of 2023), which the Donahue Institute’s report said was the first year-over-year decline since Plainridge Park Casino opened in 2015. The report notes that there was only a small increase from fiscal 2022 to fiscal 2023 “indicating that casinos may have reached their natural revenue peak even before sports betting was introduced” or that the decline could be a mere blip.
“However, the immediate leveling off of casino revenue once sports betting was introduced is striking,” the report said.
Peake told commissioners that this is an area he wants to study further before making any definitive claims.
“It does sort of look like sports betting is, at minimum, eating into the growth in gambling spending that we were seeing in the casinos. Since it opened up, the sports betting has continued to grow, but casino revenues, at least in the time period that we had observed, haven’t,” Peake said. “There does seem to be some indication that some of the money that sports betting is getting is money that would have otherwise — it seems to maybe be competing with the casinos for spending.”
Because sports betting revenues are subject to a lower tax rate than casino gaming revenues are — 15% for in-person bets and 20% for mobile bets, versus 25% tax on casino revenue and 49% tax on slot facility revenue — the Donahue Institute report warns that the emerging trend could eventually spell trouble for a state government that has come to rely more and more on gambling tax revenues.
“If sports betting continues to eat into the market share of the lottery and casinos, this lower tax rate will reduce overall government revenue from gaming. Combined with the lower operating impacts of sports wagering versus casinos, this could also reduce the positive economic impact of expanded gambling in the state,” the report said.
Bettors wagered about $4.7 billion on online sports bets in Massachusetts in 2023 and collectively lost about $454 million, the report said. That money instead flowed to sports betting companies as revenue.
The Donahue Institute report said a total $470 million was “spent” on mobile sports betting in Massachusetts in 2023, counting the money that shifted from players to operators and other spending. It said an estimated $136.9 million (29%) of that came from players who said they would have spent that money on another type of sports betting (like going to another state or betting illegally) if Massachusetts had not legalized it. The report estimated that $333.7 million (71%) was reallocated away from other types of economic activities and towards mobile sports betting.
Gaming Commission Chair Jordan Maynard asked Peake about the likelihood that Massachusetts consumers are changing how they divide up the same overall pool of “entertainment” spending, and the researcher said that is “quite likely” in most cases.
“People are probably shifting their spending away from other types of discretionary spending, and towards this. I think that it’s more likely that someone’s going to the casino less, or they’re going out to the movies or to the bars less. I think that’s more likely than that people are purchasing less groceries or less health care,” Peake said.
Employment is a major difference between casinos and sports betting. The sheer number of employees required to run resort-style casinos is “such a big part of the casino’s economic impact,” Peake said, and mobile sports betting companies simply don’t require the same in-state presence.
Mobile sports betting operators employed an average 10,265 employees across the United States each quarter of 2023, and Peake’s report found that nearly 12% of those workers — an average of 1,185 jobs per quarter — were employed in Massachusetts. But Peake said most of those jobs existed here even before Massachusetts legalized sports betting, likely alluding to Boston-based DraftKings as “one large sports betting operator that has had an established physical presence in Massachusetts prior to legalization.”
“So those are jobs that are important to those people and they’re important to the commonwealth, but they’re not really jobs that we would count towards discussing economic impact of the legalization of sports betting, because those jobs were already here,” Peake said. “It was tough to precisely estimate, but the number of jobs that were directly created as a result of sports betting was basically very, very, very few — to the point that it basically did not make sense to even attempt to model it.”
In all, the report estimates that the sports betting industry as a whole “creates or supports approximately 118 net jobs” in Massachusetts.
The report presented to the Gaming Commission on Thursday was the latest sign that lawmakers were way off the mark when they estimated the tax revenue impact of sports betting. Calendar year 2023, the focus of the report, generated $90.8 million in tax revenue from 11 months of betting. Fiscal year 2024, the first full budget year with legal betting, produced $116.69 million in additional revenue for the state, according to the Gaming Commission.
When lawmakers legalized it in August 2022 and as regulators prepared to launch sports betting in January 2023, the estimates for annual state tax revenue from the activity ranged from about $35 million to as high as $70 million once both in-person and mobile betting were fully operational.
