Grapevine

The explosion of online sports betting is taking a toll on how people invest

The explosion of online sports betting is taking a toll on personal finances, particularly among those who are financially distressed. That's the conclusion of a recent paper, "Gambling Away Stability: Sports Betting's Impact on Vulnerable Households." The authors found that sports betting has exploded since the Supreme Court overturned a federal law prohibiting 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. That has put considerable sums into state coffers, but it has come at a notable personal expense to gamblers and their families. Those who participate tend to invest less and have higher debt levels. "Our results show that not only does sports betting lead to increased betting activity, but it also leads to higher credit card balances, less available credit, a reduction in net investments, and an increase in lottery play," the authors concluded. The authors noted these negative effects were particularly noticeable among "financially constrained households." That term was not defined, but the implication is that this group typically has lower savings, lower cash levels to cover expenses, higher debt levels and lower net worth.

Investing takes a hit

The authors used a quarterly panel of 230,171 households in states that have legalized gambling. About 7.7% of the households made online sports bets, with a household average of $1,100 a year. Not surprisingly, people who gamble on sports have less money to invest, particularly in the stock market. The authors found a large decrease in net deposits to traditional brokerage accounts. "Two to three years after betting becomes legal, there is a noticeable drop in net investment relative to states where betting is not yet legal," the report said. The authors estimate that legalization reduces net investments by bettors by nearly 14%, and that every dollar spent on sports betting reduces net investment by $2.13.

More debt, overdrawn bank accounts

But the implications are much broader. "The increase in betting and consumption drives an increase in financial instability in terms of decreased credit availability, increased credit card debt, and a higher incidence rate of overdrawing bank accounts," the authors said. This is particularly true for financially constrained households. The higher credit card debt indicates that these households are not just shifting funds from one type of entertainment to another. (For example, shifting money from betting on lotteries to betting on sports.) Instead, they are "becoming more indebted to fund an addictive losing proposition." Again, lower-income households suffer disproportionately; the bottom one-third of households by income had the largest increase in spending on sports gambling relative to income.