Some bettors are taking the adage "the stock market is a casino" too seriously and selling investments to finance their sports betting habits.
The working paper "Gambling Away Stability: Sports Betting's Impact on Vulnerable Households," which was recently published, was written by researchers from the University of Kansas, Northwestern University, and Brigham Young University (BYU). According to the research team's paper, allocations for sports betting haven't replaced household spending on other types of wagering since the Supreme Court's 2018 decision on the Professional and Amateur Sports Protection Act (PASPA). However, the money spent on sports wagering frequently comes at the expense of "positive expected value" endeavors, such as stock investing.
"In contrast with the sizable effects on equity investments, we find that increases in sports betting do not coincide with decreases in participation in lotteries or other online gambling outlets like poker sites,” according to the study. “Cryptocurrency exchanges see a small decline in deposits, but of a much smaller magnitude than either the sports bets themselves or the declines in equity investments. Overall, these results suggest that most of the displacement driven by increases in sports betting falls on positive expected value ‘investments’ rather than other types of negative expected value ‘bets.’”
Through September 2023, the researchers examined every state-level legalization of sports betting following PAPSA. They assert that since PAPSA, a bettor's allocations to equities and other investments have decreased by $2 for every $1 they spend on sports betting.
Stocks Are Hard to Beat When Betting
The assertions made in "Gambling Away Stability" may be concerning because the main group of people who bet on sports, which is approximately those between the ages of 21 and 35, should also be taking use of their time and using it to their advantage in order to make profitable investments.
An investor who starts with $10,000 in a basic broad market fund and makes $500 monthly contributions for ten years will end up with $99,145 at the end of that decade, assuming average annualized returns of 6%.
That proves that investing in stocks is feasible, especially when held over extended periods of time. The example also highlights how challenging it is to try to outperform stocks through sports betting. Only 1% (or less) of sports bettors are probably able to consistently accomplish it.
The authors of the article contend that authorities cannot ignore the signal that some bettors are taking money away from stocks to finance sports wagers.
“Policymakers should consider how the allure of betting might divert funds from savings and investment accounts, particularly for constrained households, which can affect household financial stability and long-term wealth accumulation,” they observed. “Understanding these dynamics is important for crafting policies that mitigate potential negative impacts while allowing for the economic benefits and entertainment value of legalized sports betting.”
Additional Economic Consequences of Sports Betting
In jurisdictions that permit mobile sports betting, credit scores are somewhat dropping and bankruptcy filings are slightly increasing, according to a recent study conducted by the University of California Los Angeles (UCLA) and the University of Southern California (USC).
Similar findings were made by the researchers behind "Gambling Away Stability," who pointed out that households that engage in sports wagering may be susceptible to bank overdraft fees and restricted access to credit because it frequently occurs in addition to other types of betting rather than at the expense of them.
“Financially constrained households increase their credit card balances by about $368 relative to less constrained households, an 8% increase in credit card debt relative to the sample mean,” concludes the study. “Additionally, we find that more constrained households reduce their credit card payments and increase overdrafts of their bank account. Combined, these results suggest that sports betting exacerbates the financial constraints of households already operating with less flexibility. The reduced payments towards credit card bills, coupled with rising debt levels, indicate that these households are not merely shifting funds from one type of entertainment to another but are instead becoming more indebted to fund an addictive losing proposition.”
