Sports betting has grown explosively since 2018, when a U.S. Supreme Court ruling struck down a federal ban on it. Now, Americans wager more than $165 billion on sports annually, contributing to an industry larger than state-run lotteries even excluding prediction markets such as Kalshi and Polymarket.
State governments are likewise cashing in. More than three dozen states have legalized this gambling, and in 2025, they collectively raised more than $3 billion by taxing sportsbooks.
University of Chicago economist Matthew Brown and Ph.D. student Jeffrey Ohl wanted to know how state taxes on sports betting could be designed more effectively. In a recent working paper, they found the tax most states already use is, in many ways, a win for policymakers.
