The notion that “the stock market is a casino” has taken on a new, troubling reality for some bettors who are now selling investments to finance their sports wagering habits. This assertion is supported by a recently published working paper titled “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households,” authored by researchers from Brigham Young University, Northwestern University, and the University of Kansas.
According to the study, since the 2018 Supreme Court ruling on the Professional and Amateur Sports Protection Act (PASPA), the funds allocated to sports betting haven’t significantly displaced other forms of wagering. However, these dollars often come at the expense of more stable financial investments, such as stocks. The research found that increases in sports betting don’t coincide with reductions in participation in lotteries or other online gambling outlets. Cryptocurrency exchanges also see a minor decline in deposits, but this reduction is far smaller than the declines in equity investments. The overall implication is that funds diverted to sports betting are primarily drawn from investments with positive expected value.
The researchers analyzed all state-level sports wagering legalizations post-PASPA through September 2023. They found that for every dollar directed to sports betting, there was a corresponding two-dollar drop in allocations to stocks and other investments, marking a significant shift in household financial behavior.
This trend is particularly concerning given that the primary demographic for sports wagering, individuals aged 21 to 35, should ideally be leveraging their long-term investment horizon for financial success. For instance, an investor who starts with a $10,000 investment in a broad market fund and contributes $500 monthly could grow their investment to $99,145 over ten years, assuming an average annualized return of 6%. This underscores the challenges of trying to outperform equity returns through sports betting, a feat few can achieve consistently.
The shift from stable investments to sports wagering has implications that policymakers cannot ignore. The researchers behind “Gambling Away Stability” suggest that this diversion of funds could undermine household financial stability and long-term wealth accumulation, particularly for constrained households. They recommend that policymakers consider these dynamics when crafting policies to mitigate potential negative impacts while balancing the economic benefits and entertainment value of legalized sports betting.
Further financial consequences of sports betting were highlighted in a recent study by the University of California Los Angeles and the University of Southern California. This study noted modest declines in credit scores and increases in bankruptcy filings in states that allow mobile sports wagering. The “Gambling Away Stability” researchers echoed these findings, pointing out that sports betting often comes in addition to existing forms of gambling, not as a replacement. Households engaging in this behavior may face bank overdraft fees and reduced credit access.
Financially constrained households, in particular, see a rise in their credit card balances by about $368, an 8% increase relative to the average. Additionally, these households tend to reduce their credit card payments and increase bank account overdrafts, exacerbating their financial constraints. This indicates that these households are not merely reallocating entertainment funds but are becoming more indebted to finance a habit that, for many, is a losing proposition.
