Vulnerable Americans are reportedly withdrawing funds from their brokerage accounts to support their online sports betting habits, according to a new study.
The paper, titled “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households,” found that access to online sports betting reduces net investment in stocks and exacerbates the financial difficulties of constrained households. The research claims that for every $1 spent on betting, net investment decreases by just over $2.
Speaking to Bloomberg, co-author Jason Kotter, who is an assistant professor of finance at Brigham Young University, said: “It’s not just an innocuous rise of a fun entertainment industry, although it surely is that to some types of household.
“There’s a real cost particularly to constrained households here that I think should concern policy makers.”
Kotter also wrote on X that online sports betting was causing households to become much more likely to overdraw their bank accounts in the future. Consequently, their longer-term financial health suffers.
While some households only try only betting once, around 40% of bettors make more than 10 deposits. This betting behavior is quite sticky; after making their first bet, households have a 50-60% probability of depositing more money each quarter for the following 3 years. pic.twitter.com/HgFEzHJSyR
— Jason Kotter (@JasonKotter) July 12, 2024
The analysis suggests that around 40 per cent of bettors were making more than 10 deposits. Once households place their first bet, they have a 50 to 60 per cent chance of depositing more funds each quarter over the next three years.
The study also found that more financially constrained households tend to reduce their credit card payments and increase their bank account overdrafts.
The decrease in credit card payments, along with escalating debt levels, suggests that these households are not simply reallocating funds from one form of entertainment to another. Instead, they are accruing more debt to finance what is often an “addictive losing proposition.”
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However, David Forman, Vice President of the American Gaming Association, disagreed, saying that the paper’s premise was flawed.
“They talk about spending on sports betting as a negative expected value investment compared to other positive expected value investments,” he said. “That’s just not how consumers think about spending their entertainment dollars on sports. It is not an investment, it’s an entertainment option.”
In 2018, the United States Supreme Court overturned a Federal ban on sports betting, leading states to rapidly introduce legislation to legalize both in-person and online sports betting for consumers. The growth of these markets was swift, generating over $120 billion in total bets and $11 billion in revenues in 2023 alone.
Featured image: Ideogram
