The explosion of online sports betting in the United States since the Supreme Court overturned a federal law prohibiting it in 2018 has had a significant impact on personal finances, particularly among financially distressed individuals. A recent paper titled “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households” found that since then, 38 states have legalized sports betting, making it a thriving industry that generated over $120 billion in total bets and $11 billion in revenue in 2023 alone. While this has generated revenue for states, it has come at a personal cost to many gamblers and their families.
The authors of the paper noted that those who participate in sports betting tend to invest less and have higher levels of debt. The negative effects of sports betting were particularly noticeable among financially constrained households, defined as those with lower savings, lower cash reserves, higher debt levels, and lower net worth. These households experienced an increase in betting activity along with higher credit card balances, decreased credit availability, a reduction in net investments, and an increase in lottery play.
A study conducted by the authors used a quarterly panel of 230,171 households in states where gambling is legal, and found that individuals who gamble on sports have less money to invest, especially in the stock market. The legalization of sports betting was associated with a noticeable decrease in net investments by bettors, with each dollar spent on sports betting reducing net investment by $2.13. This decrease in net investments was estimated to be nearly 14% post-legalization.
In addition to a decrease in net investments, the increase in sports betting and consumption was found to drive financial instability among financially constrained households. This instability manifested in terms of decreased credit availability, increased credit card debt, and a higher incidence rate of overdrawing bank accounts. The rise in credit card debt indicated that households were becoming more indebted to fund their gambling habit, rather than simply shifting funds from one form of entertainment to another.
Notable differences were observed between bettors and non-bettors, with bettors displaying riskier behavior such as being more likely to have invested in crypto, overdrawn their bank accounts, played online poker, or purchased lottery tickets. Low-income households, particularly the bottom one-third income group, had the largest increase in spending on sports gambling relative to income, which disproportionately affected them.
The conflicting signals sent by governments in legalizing and expanding sports gambling, where the majority of participants end up losing money, creates a dilemma for policymakers. While individuals have the freedom to spend money as they choose, promoting activities like sports betting can undermine government efforts to promote saving for retirement through tax incentives and financial literacy programs. Policymakers are urged to consider how the allure of betting may divert funds from saving and investment accounts, particularly for financially constrained households, impacting long-term financial stability and wealth accumulation.
