A Non-Regulatory Approach to Addressing a "Public Health Crisis"

     Recently it seems as though more and more experts and commentators have been focusing on the harms of legalized sports betting. Many states have attempted to tackle the issue with either public regulation or a private monopoly supported by anti-competitive state policy (e.g. only Draft Kings can facilitate bets). The impetus for these regulatory measures is not just that legalized gambling poses a risk to those with gambling addictions but there are also negative consumption externalities that may affect the public at large. Compulsive gambling has been linked to increased bankruptcy rates (with many families becoming financially ruined due to a member's gambling problem) and lower productivity across the board, especially among young men. Many states, such as New York, have incredibly high tax rates on gambling revenues, reaching upwards of 50%. 

In spite of the regulatory initiatives, the issue remains that these books receive a disproportionate amount of revenue from excessive gamblers. As evidenced by numerous horror stories of sportsbooks attempting to lure problem gamblers back to using their platform, these books still have an incentive to circumvent these regulations. Additionally, a high tax rate means thinner profit margins. In the long run it is certainly possible that markets and social awareness may mitigate the problems associated with problem gambling and protect vulnerable consumers and their dependents; however, protecting these consumers in the short run may require some unconventional policy solutions. One potential solution could be to introduce a reverse Pigouvian tax (essentially a subsidy) which encourages good behavior on the part of the sportsbook. This could take the form of an independent auditing agency determining whether or not the sportsbook has successfully barred problem gamblers from using the platform. If the book passes the audit, they could be eligible for entry into a lower tax bracket. While there are certainly drawbacks to this sort of policy (such as reducing state revenue) and I am not claiming it to be a permanent fix, it could offer protection for vulnerable consumers by mitigating a sportsbook’s incentive to go after them. Protecting these consumers would protect society writ large by reducing their negative consumption externalities. Instead of referring to this as a solution it may be wiser to heed the words of Thomas Sowell and refer to it as an advantageous trade-off. After all, as Sowell would say, there are no solutions, only trade-offs.