In 2024, Americans poured $150 billion into sports betting, generating $13.7 billion for the industry and $2.8 billion in tax revenue, a nearly 25 percent jump from the previous year. Today sports betting is legal in thirty-eight states and Washington, DC, with Missouri set to join the fold. Just a decade ago, this kind of freewheeling access was almost unthinkable. It only became possible after the Supreme Court struck down a 1992 federal ban on commercial sports betting in 2018, capping decades of gradual liberalization in the gambling sector, from commercial and tribal casinos to electronic gaming machines in bars and convenience stores.

What opened the floodgates for this liberalization? Before 1963, most types of gambling were banned in most of the United States. That year, New Hampshire voted to create the first state-run lottery. New Hampshire has no state income tax and no sales tax, and as a result it had the lowest education funding in the country. Half of the state’s revenue came from excise taxes on tobacco, alcohol, and horse racing. Under a Republican-controlled legislature and a Democratic governor, the creation of a state lottery was approved by 76 percent of voters in a popular referendum. After that, the number of states administering lotteries rose quickly, from fourteen in 1980 to twenty-eight in 1988 to thirty-nine in 2003. Today state-run lotteries exist in forty-five states, plus DC, Puerto Rico, and the US Virgin Islands.

New Hampshire’s move was driven by its unique lack of tax revenue sources, during a time of relative prosperity for most of the country. But the real explosion in lottery legalization came during the 1980s, the decade of feel-good Reaganomics following the widespread deindustrialization of the ’70s. “Faced with declining tax revenues due to industry and job losses and with intense resistance to raising taxes, state governments turned to lotteries to bolster strapped public coffers,” explains David Nibert in his 1999 book Hitting the Lottery Jackpot: Government and the Taxing of Dreams. “Federal revenue-sharing funds, community development block grants, mass transit programs, funds for education, housing subsidies, and other programs were substantially cut or eliminated, forcing state governments to assume the expense or scale back their programs.”

Among elected officials, support for state lotteries was practically nonpartisan — and so was opposition to them. In New York, which became the second state to legalize lotteries after a 1966 referendum, Governor Nelson Rockefeller called the lottery “the most regressive taxation you can get.” Even the Board of Regents, which governs the state public education system that was set to benefit from the lottery’s earmarked funds, spoke out against it, saying, “We believe that attempts to support public education by the lottery involve serious moral considerations and, in our opinion, are inconsistent with the goals of education.”

The legalization of gambling is widely perceived as being driven by revenue-starved officials who need money for state enterprises and know lotteries are more palatable than raising taxes, but the reality is that most state lotteries were legalized through popular referendum, against the wishes of both Republican and Democratic lawmakers who felt that gambling was a vice the state should not encourage.

Because lottery monies are profits derived from state-owned enterprises, they are essentially taxes, if implicit and optional ones. Proponents of state lottery describe it as a “painless” tax — painless in that it is only paid by the willing. But research shows it’s more regressive than most other forms of tax, including sales tax and sin taxes like those on alcohol and tobacco. This is because the poor spend a higher proportion of their income on it than others do. In their 1989 book Selling Hope: State Lotteries in America, Charles Clotfelter and Philip Cook said that “an increase in the revenue from lotteries has exactly the same distributional impact as the imposition of an increase in the rate of a similarly regressive tax.”

Contrary to the broadly accepted explanation that people buy lottery tickets because of the fun and excitement of a game of chance, research indicates that low-income participants view it as a “rare opportunity for radically improving their standard of living,” as one 2007 study in the American Journal of Economics and Sociology concluded. In a United States where the American dream is out of reach for so many, it makes sense that buying a lottery ticket might start to seem like a smart investment. It’s clear that the one-in-a-million chance you have of winning the lottery is still higher than the likelihood that you’ll become a multimillionaire through your own hard work.

The legalization of lotteries beginning in 1963 created a wholly new role for the state in America: marketing a consumer product in the pursuit of profit. States that offer lotteries don’t just make a product available; they advertise in order to generate sales, and they’re forced to innovate and introduce new products when those sales flatline. For every dollar spent on the lottery, roughly fifty cents is paid out again in prizes, twelve cents goes to operating expenses, and the remaining thirty-eight cents is state revenue.

One of the grounds on which lotteries gained popular support was by earmarking funds for education and other worthy causes. But people are generally ill-informed about how much money lotteries generate for states and the impact of those funds. In 1986, after a period of rapid expansion and growth of state lotteries, the funds they generated made up, on average, 3 percent of state revenues.

The reality is that lotteries have little effect on how states spend money. The state budgeting process means that when some funds are earmarked to be spent in a particular way, say on public education, other funds are simply reallocated to necessary areas of spending in what has been characterized as a shell game. In fact, states like Illinois and Ohio saw a decline in educational funding after introducing a lottery, because “local officials think that schools are rolling in lottery money.”

It’s also not clear that creating state lotteries contributed to the demise of illegal numbers games, as another argument in their favor suggested. While it’s difficult to collect reliable data about the scale of illegal betting over time, it’s likely that the two markets continued to operate in parallel. Many illegal operators — who remain preferred by some customers because of their willingness to extend credit and their acceptance of smaller bets — began to take wagers on the state drawing, “thus assuring their customers that the drawing is not rigged and enabling them to find out the winning number each day simply by watching the televised drawing,” Clotfelter and Cook explain.

During the years of the rapid expansion of state lotteries, there was wide-spread controversy and debate over whether states should enable and even encourage gambling, whether lotteries constituted an unacceptably regressive tax on the poorest members of society, and whether offering a government-sanctioned get-rich-quick path to wealth would result in a decline in work ethic in the culture at large. But amid these arguments — and while being helped along in their decision by well-funded lobbying campaigns from the lottery equipment industry, which had grown to a quarter-billion-dollar business by 1986 — time and again, state residents voted to create a lottery. And once they did, lotteries immediately became uncontroversial.

Today it’s hard to imagine anyone mounting a strong argument that state lotteries should be abolished — it would seem as patronizingly old-fashioned as campaigning to bring back Prohibition. The expansion of legal gambling to casinos and sports betting has followed much the same cultural trajectory. Something once unimaginable has quickly become an accepted part of daily life.

Now 22 percent of all Americans, including half of men between the ages of eighteen and forty-nine, have active online sports betting accounts. The next horizon is legalizing online betting nationwide. While the average sports bettor expects a small gain from their future wagers, a recent study showed that the real outcome is an average loss of 7.5 cents per dollar wagered. And according to the National Council on Problem Gambling, gambling addiction rose by as much as 30 percent between 2018, the year the Supreme Court opened the door to state-sanctioned sports betting, and 2021.

The lottery, Clotfelter and Cook note, is broadly redistributive: many lose so that a few may win. Whatever we might think about the morals of gambling, that kind of redistribution is the opposite of socialism. It’s the redistributional logic of capitalism.