Algerina Perna | Baltimore Sun | MCT | Getty Images
The explosion of online sports betting is putting a strain on personal finances, especially those who are in financial distress.
That's the conclusion of a recent article titled “Gambling Away Stability: Sports Betting's Impact on Vulnerable Households.” The authors noted that sports betting has exploded since the Supreme Court struck down a federal law banning it in 2018. Since then, 38 states have legalized it, and it has become a growth industry, generating more than $120 billion in total bets and $11 billion in revenue in 2023 alone.
While this has brought significant sums of money into the state coffers, it has also come at a significant personal cost to the players and their families. Players tend to invest less and have higher debts.
“Our results show that sports betting not only leads to increased betting activity, but also to higher credit card balances, less available credit, a reduction in net investment, and an increase in lottery gambling,” the authors concluded.
The authors found that these negative effects were particularly evident among “financially constrained households.” This term was not defined, but suggests that this group typically has lower savings, less cash to cover expenses, higher debt, and lower net worth.
Investments suffer a setback
The authors used a quarterly panel of 230,171 households in states where gambling is legal. About 7.7% of households placed online sports bets, with the average household amount being $1,100 per year.
Not surprisingly, people who bet on sports have less money to invest, especially in the stock market. The authors found a sharp decline in net deposits in traditional brokerage accounts. “Two to three years after betting is legalized, there is a significant decline in net investment compared to states where betting is not yet legal,” the report said.
The authors estimate that legalization will reduce bettors' net investment by nearly 14% and that every dollar spent on sports betting will reduce net investment by $2.13.
More debt, overdrawn bank accounts
However, the effects are much more far-reaching.
“The increase in betting and consumption leads to an increase in financial instability in the form of lower credit availability, higher credit card debt and higher bank overdraft rates,” the authors say.
This is especially true for financially constrained households. The higher credit card debt suggests that these households are not just shifting money from one form of entertainment to another (for example, shifting money from lottery betting to sports betting). Instead, they are “going deeper and deeper into debt to finance an addictive losing game.”
Here, too, lower-income households are disproportionately affected. The bottom third of households saw the largest increase in spending on sports betting relative to income.
Weather vs. Non-Weather
There were notable differences between the characteristics of bettors and non-bettors.
Both groups had similar incomes, but bettors engaged in riskier behavior. They were more than twice as likely as non-bettors to have invested in cryptocurrencies or overdrawn their bank accounts. They were four times more likely to play online poker or buy lottery tickets.
These findings are consistent with several previous studies. A 2009 study concluded that gambling-related activities are more common among low-income investors, who tend to bet excessively on government lotteries and are overweight in risky lottery-like stocks.
In a bind
The authors point out the dilemma facing policymakers. By continuing to legalize and expand activities such as sports betting – where the vast majority lose money – the government is sending contradictory signals.
On the one hand, the government's attitude is: these are adults, they have the right to spend their money as they want. And we need the money.
But governments have other priorities, such as promoting retirement provision, which are clearly in conflict with promoting gambling.
“As sports betting legalization gains traction, it may undermine government efforts to encourage saving through tax incentives and financial literacy programs,” the authors concluded.
“Policymakers should keep in mind that the lure of betting can lead to an outflow of funds from savings and investment accounts, especially among cash-strapped households, which can affect households' financial stability and long-term wealth accumulation.”