Ramstad: Sorry, Minnesota still doesn’t need sports betting

Two years ago, I disappointed my nephews by writing Minnesota lawmakers should put off approval of sports betting for at least a year.

My reasoning was that none of the businesses that will profit in a big way from sports betting in Minnesota are Minnesota companies.

As it turned out, the Legislature couldn’t reach an agreement in either 2023 or 2024 to legalize sports betting. I don’t think it will this year either.

I’m still fine with that, with apologies to my nephews. (And to my employer. The Minnesota Star Tribune, like many media companies, sees revenue opportunities in legalized sports betting.)

Since the U.S. Supreme Court ruled in 2018 that states could decide whether to allow sports betting, Minnesota has been on a slow roll about it.

Legislators historically are cautious about the proliferation of vices. The state’s decision in 2017 to allow Sunday alcohol sales came six years after lawmakers allowed the state’s brewers to sell alcohol on their property, the move that led to an explosion of craft beer makers.

Two years ago, Minnesota was already in the minority of states that had not legalized sports betting. Now it’s just one of 12 states that hasn’t.

The debate here has been shaped by a tug-of-war between the state’s Native American tribal nations, which have exclusive rights to operate casinos in Minnesota, and two metro-area racetracks where gambling is also allowed.

A bipartisan group of lawmakers forged a compromise between the tribes and racetracks near the end of last session, though it didn’t have enough support to get through the House and Senate.

Every year legislators delay action, more evidence builds about the harmful effects of the mobile apps that are now the dominant form of sports betting.

Earlier this month, Sen. John Marty, DFL-Roseville, presided over an informational hearing at the Capitol where he invited researchers who have documented such effects to present their findings.

Appearing by videochat, Brett Hollenbeck of UCLA’s Anderson School of Management, said a study of consumer credit data found that, in states that allowed sports betting, the average credit score fell 1% after about four years. That small effect is measured against a state’s entire population, most of which isn’t engaging in sports betting.

“It suggests that, for the people who are potentially problem gamblers, they may be experiencing a very large decrease in their credit scores, so much so that it shows up in the average for the full population,” Hollenbeck said.

Another study led by researchers at Southern Methodist University, using anonymous bank records from more than 700,000 bettors, found that sports betting is harmless to most. The median gambler in that study deposited $136 with gambling apps over five years.

However, less than 5% of bettors withdrew more money from their gambling apps than they deposited. In other words, most people lost money. The gambling apps make their profits from the losers, especially the hardcore 3% of bettors who lost the most money. They accounted for almost half of the revenue of the operators, the biggest of which are FanDuel and DraftKings.

Those two firms' revenue accounts for nearly two-thirds of the $15 billion-a-year online gambling business in the U.S.

“There are some legitimate criticisms of sports gambling, but we’ve got it right now,” said Pat Garofalo, a Republican from Farmington who retired from the state House last year and was a lead backer of sports betting legislation.

He’s referring to the relative ease of circumventing state law by installing a betting app on a smartphone, then using a virtual private network (VPN) rather than one tied to Minnesota’s location, to gamble.

“It’s a matter of, do you want a regulated environment with consumer protection? And you could use some of the proceeds to provide funding for gambling addiction,” Garofalo said. “It’s pretty common sense that we should be going on a regulated market instead of a black market.”

This is part of the tension in regulating vices. When does regulation become endorsement of the behavior? And when do vices become so problematic they end up consuming more resources from the regulator?

Over the past two years, Minnesota has been getting a real-time lesson in that tension because of lawmakers' decision to legalize marijuana.

“We’ve done a lot of things wrong. You can watch the rollout of the pot business here and several things like that where we’ve thrown caution to the wind,” said Annette Meeks, a Republican former state official and longtime opponent to sports betting legalization in the state. “We say, ‘We don’t want this trend to pass us by,' and in the meantime we hear about the problems other states are having.”

For the past few years, the legislative debate on sports betting focused on the minutiae of pleasing various constituencies that have a financial stake in the outcome.

Now, the vibe is shifting to whether we really want this at all.