The Income Elasticity of Gross Sports Betting Revenues in Nevada: Short-Run and Long-Run Estimates

Abstract

In May 2018, the Supreme Court overturned the Professional and Amateur Sports Protection Act, thereby allowing all states to offer sports betting. Prior to this, Nevada was the only state with unrestricted sports betting. Using sports betting data from Nevada, we estimate long-run and short-run income elasticities to determine the growth and volatility of sports betting as a tax base. Sports gambling grows at a similar rate as state income and is stable and insensitive to short-run shocks to income. However, the amount of money kept by casinos, and hence the state, is small compared to other traditional tax bases.

Keywords

sports gambling tax revenue income elasticity

Get full access to this article

View all access options for this article.

References

Bruce

Fox

W. F.

Tuttle

M. H.

(2006). Tax base elasticities: A multi-state analysis of long-run and short-run dynamics. Southern Economic Journal, 73(2), 1–25. https://doi.org/10.2307/20111894

Cargill

T. F.

Eadington

W. R.

(1978). Nevada's Gaming revenues: Time characteristics and forecasting. Management Science, 24(12), 1221–1230. https://doi.org/10.1287/mnsc.24.12.1221

Clotfelter

Cook

(1987). Implicit taxation in lottery finance. National Tax Journal, 40(4), 533–546. https://doi.org/10.1086/ntj41788693

Clotfelter

Cook

(1989). Selling hope. Harvard University Press.

Combs

Spry

(2019). The effects of lotto game changes and large jackpots on income elasticities and sales. Contemporary Economic Policy, 37(2), 261–273. https://doi.org/10.1111/coep.12393

Cox

Schwartz

A. L.

Van Ness

B. F.

Van Ness

R. A.

(2021). The predictive power of college football spreads: Regular season versus bowl games. Journal of Sports Economics, 22(3), 251–273. https://doi.org/10.1177/1527002520975837

Dadayan

Ward

R. B.

(2009, September 21). For the first time, a smaller jackpot: Trends in state revenues from gambling. Albany: The Nelson A. Rockefeller Institute of Government, 1–20. http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=73AE29560B3059844CA17EEA330A7D9F?doi=10.1.1.175.4225&rep=rep1&type=pdf

Dare

W. H.

Dennis

S. A.

(2011). A test for bias of inherent characteristics in betting markets. Journal of Sports Economics, 12(6), 660–665. https://doi.org/10.1177/1527002510395864

Dickey

D. A.

Fuller

W. F.

(1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427–431. https://doi.org/10.2307/2286348

10.

Fox

W. F.

Campbell

(1984). Stability of the state sales tax income elasticity. National Tax Journal, 37(2), 201–212. https://doi.org/10.1086/ntj41791946

11.

Garrett

Coughlin

(2009). Inter-temporal differences in the income elasticity of demand for lottery tickets. National Tax Journal, 62(1), 77–99. https://doi.org/10.17310/ntj.2009.1.04

12.

Grote

Matheson

(2013). The economics lotteries: A survey of the literature. In Vaughan-Williams

Siegel

D. S.

(Eds.), The Oxford handbook of the economics of gambling (pp. 670–691). Oxford University Press.

13.

Groves

H. M.

Kahn

H. C.

(1952). The stability of state and local tax yields. American Economic Review, 42(1), 87–102.

14.

Humphreys

(2021). Legalized sports betting, VLT gambling, and state gambling revenues: Evidence from West Virginia. Eastern Economic Journal, 47(1), 9–28. https://doi.org/10.1057/s41302-020-00178-0

15.

Humphreys

Matheson

(2012). Booms, busts, and gambling: Can gaming revenues reduce budget volatility? In Ascah

Ryan

(Eds.), Boom and bust again. (pp. 267–284). University of Alberta Press.

16.

Humphreys

Matheson

(2010). Booms, busts, and gambling: Can gaming revenues reduce budget volatility? Holy Cross Economics Working Papers. Paper 26. https://crossworks.holycross.edu/econ_working_papers/43/

17.

Lee

Han

Suk

Sung

(2016). Analysis of large mega millions rollovers. Journal of Gambling Business & Economics, 10(1), 65–85. https://doi.org/10.5750/jgbe.v10i1.1170

18.

Matheson

(2021). An overview of the economics of sports gambling and an introduction to the symposium. Eastern Economic Journal, 47(1), 1–8. https://doi.org/10.1057/s41302-020-00182-4

19.

Mikesell

J. L.

(1989). A note on the changing incidence of state lottery finance. Social Science Quarterly, 70(2), 513–521.

20.

Mikesell

J. L.

(1994). State lottery sales and economic activity. National Tax Journal, 47(1), 165–171. https://doi.org/10.1086/ntj41789058

21.

Murphy v. National Collegiate Athletic Assn. 584 US (2018). No. 08-205. Supreme Court of the United States. (May 14, 2018).

22.

Newey

W. K.

West

K. D.

(1987). A simple, positive semi-definite, heteroskedasticity, and autocorrelation consistent covariance matrix. Econometrica, 55(3), 703–708. https://doi.org/10.2307/1913610

23.

Nichols

M. W.

Tosun

M. S.

(2008). The income elasticity of gross casino revenues: Short-run and long-run estimates. National Tax Journal, 61(4), 635–652. https://doi.org/10.17310/ntj.2008.4.04

24.

Oster

(2004). Are lotteries regressive: Evidence from the powerball. National Tax Journal, 57(2), 179–187. https://doi.org/10.17310/ntj.2004.2.02

25.

Paul

R. J.

Weinbach

A. P.

Humphreys

(2015). Bettor belief in the hot hand: Evidence from detailed betting data on the NFL. Journal of Sports Economics, 15(6), 636–649. https://doi.org/10.1177/1527002512465414

26.

Perez

Humphreys

(2013). The ‘who and why’ of lottery: Empirical highlights from the seminal economic literature. Journal of Economic Surveys, 27(5), 915–940. https://doi.org/10.1111/j.1467-6419.2012.00732.x

27.

Sauer

R. D.

(1998). The economics of wagering markets. Journal of Economic Literature, 36(4), 2021–2064.

28.

Shriber

(2020, September 24). DraftKings Could See $4.3 Billion in Revenue by 2030, Says Analyst. Casino.org. Retrieved from: https://www.casino.org/news/draftkings-could-see-4-3-billion-in-revenue-by-2030says-analyst/.

29.

Silver

A. J.

(2020, April 7). Legal Sports Betting Still Faces Competition from Illegal Market; Low State Taxes Could Turn The Tide. Forbes. Retrieved from: https://www.forbes.com/sites/andrewjsilver/2020/04/07/legal-sports-betting-still-faces-competition-from-illegal-market-low-state-taxes-could-turn-the-tide/#2965e88e23e3.

30.

Sobel

R. S.

Holcombe

R. G.

(1996). Measuring the growth and variability of tax bases over the business cycle. National Tax Journal, 49(4), 535–552. https://doi.org/10.1086/ntj41789225

31.

Stock

J. H.

Watson

M. W.

(1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica, 61(4), 783–820. https://doi.org/10.2307/2951763

32.

Stock

J. H.

Watson

M. W.

(2011). Introduction to econometrics. Third Edition, Pearson.

33.

U.S. Sports-Betting Market To Hit $5.7bn By 2024 (2019, May 13). Gambling Compliance. Retrieved from: https://gamblingcompliance.com/premium-content/insights_analysis/us-sports-betting-market-hit-57bn-2024.

34.

Wasiolek

(2020, October 9). US Sports Betting Worth a Wager for Investors. Morningstar. Retrieved from: https://www.morningstar.com/articles/1003994/us-sports-betting-worth-a-wager-for-investors.

35.

Wolf

(2018, May 14). Supreme Court Strikes Down Ban on Sports Betting in Victory for New Jersey. USA Today. Retrieved from: https://www.usatoday.com/story/news/politics/2018/05/14/supreme-court-strikes-down-ban-sports-betting-new-jersey/1053022001/.