It’s Madness! An Analysis of the Effects of Legalized Sports Gambling in the United States on NBA Rookie Salaries

Abstract

With the lifting of the federal ban on sports gambling in 2018, the betting industry in the United States has exploded within the sporting world. In this thesis, I explore the connection between the legalization of sports gambling and rookie salaries in the NBA. Increased sports betting, especially on NCAA basketball, will cause the March Madness tournament to demand more attention, viewership, and media coverage as compared to before the legislation change, functioning to increase the incoming salaries of those top-ranked players who are drafted to the NBA in the following year. Using difference-in-difference regression models, I find that the legalization of sports betting following the 2018 Supreme Court decision did significantly increase the rookie scale amounts of first round NBA draft picks as compared to before the legislation change. The largest increases in rookie scales were witnessed amongst the first overall draft picks who receive the highest salary of all draft picks. Examining the impact of sports gambling at the individual level of NBA draft selections is an effective way to analyze effects on players as opposed to the effects on teams or leagues as a whole.