Apps vs. Scratch-offs: Does Sports Betting Cannibalize Lottery Sales?
Overview: In the study titled, “Substitution and Spill-over: Measuring the Impact of Legalized Sports Betting on Convenience Store Lottery Sales,” NYU Stern PhD student Anthony Adam Sy and Professor Masakazu Ishihara investigate the effect of the legalization of online sports betting (OSB), such as through using an app on your phone, and retail sports betting (RSB), which involves placing bets in-person, on convenience store lottery sales.
Why study this now: As of October 2025, 40 US states have legalized some form of sports gambling, and revenues in the sports betting industry rose from $1.35B to $15.59B between 2018-2024. One of the rationales for legalizing sports betting was the potential for significant tax revenues, but policymakers and other stakeholders have raised the concern that sports betting may take away from another source of tax revenue within the gambling industry: lotteries. The researchers assess the possibility of this effect, determining if these new forms of gambling steal customers away from the lottery or instead encourage more people to play.
What the researchers found: The researchers found that the impact on lottery sales depends entirely on what types of sports betting are legalized:
- OSB helps lotteries: When states only launched online sports betting, monthly lottery sales increased by 17.3%, suggesting the dominance of the spill-over effect, wherein sports betting increases a person’s general appetite for gambling.
- RSB hurts lotteries: When states only launched retail sports betting, monthly lottery sales decreased by 16.4%. This implies the dominance of the substitution effect, wherein people take the money they would have spent for lotteries and spend it at a sportsbook instead.
- Minimal combined impact: When states launched both OSB and RSB options simultaneously, there was no significant change in lottery sales, suggesting that the effects cancelled each other out.
What does this change: These findings provide a clear strategy for policymakers and business owners. For policymakers who want to maximize tax revenue without taking from lottery sales, legalizing OSB is the best option. For convenience store owners, the findings can serve as a forecasting tool: if online betting is coming to your state, stock up on scratch-offs; if only a physical sportsbook is coming, prepare for a lotto sales dip.
Key insight: “Particularly, from the perspective of maximizing tax revenues,” note the researchers, “it would be best for states to either: (1) legalize OSB only (as it increases lottery sales), or (2) legalize both OSB and RSB (which has no effect on lottery sales, but there is the extra tax revenue).”