Sports betting is soaking ‘financially constrained’ households

This story was originally published by CommonWealth Beacon.

While political leaders and policymakers voice concerns about the large number of families living on the financial edge, often extolling the value of various government-sponsored savings plans, they have simultaneously legalized sports betting, embracing an industry that is directly undermining the goal of saving for the future.

That’s the finding of a massive new study looking at the impact of sports betting on household finances in the first six years since a 2018 US Supreme Court decision cleared the way for states to legalize gambling on sports. The study found that legalization of online sports betting has not led people to divert money from other forms of entertainment to this new sector, but has instead led them to overextend their budgets at the expense of saving money through investment accounts, especially among the most financially vulnerable households. 

The study linked sports betting to “a large decrease” in deposits to brokerage accounts, accompanied by “decreased credit availability, increased credit card debt, and a higher incidence rate of overdrawing bank accounts.” In all, say the researchers, access to online sports betting “exacerbates financial difficulties faced by constrained households.” 

The study defined constrained households based on lower savings rates, higher credit card debt, and a history of bank overdrafts. 

Massachusetts joined the sports betting bandwagon last year, one of 38 states plus Washington, DC, where gambling on sports is now legal.  

Scott Baker, an associate professor of finance at the Kellogg School of Management at Northwestern University and the lead author of the report, said a primary question the research sought to answer was whether people simply turned to sports betting instead of going out to the movies or spending disposable income on other forms of entertainment, including shifting money already spent on other types of gambling to bet on sports. 

Using financial data from 230,000 US households, the researchers found that the introduction of online sports gambling does not displace other spending but instead leads to new overspending and “significantly reduces households’ savings allocations.” 

“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,” the authors write.

What we’re seeing from sports betting is “people going over their budgets, having trouble making ends meet,” Baker said in an interview. 

The study, “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households,” found that legalization of sports betting led to a 14 percent decrease in household deposits in brokerage investment accounts, with every $1 in sports betting reducing net investments by roughly $2. 

Among households that placed online sports bets – roughly 8 percent of all households – the average annual spending on sports gambling was $1,100. The share of their income that low-savings households spent on sports betting, however, was 32 percent higher than the share spent by higher-income homes. 

Rachel Volberg, a professor in the School of Public Health at the University of Massachusetts Amherst and a leading researcher on gambling, said unlike casino gambling, which has grown gradually over several decades, the 38 states that have rushed to legalize sports betting since 2018 did so with little evidence available on its impact before diving in. “So we’re in the middle of a gigantic social experiment,” she said. 

Volberg said the study results did not surprise her. She said they are “pretty much in line with what we know about lotteries,” which is that people who have lower incomes tend to spend a larger proportion of that income than wealthier people do on lottery tickets.” 

With the sports-betting horse already out of the barn, Baker said policymakers should look for ways to mitigate its harmful effects. He said the toll it is taking on financially constrained households seems most closely tied to online sports betting, which may be an argument for limiting any move to legalization in the small number of states that have not yet done so to in-person locations. 

While states and the federal government have sought to encourage savings and investments, the rush to legalize sports betting doesn’t just send a mixed message about the value of  long-term investing, the study says it appears to be working directly at cross purposes with those efforts. “As legalized sports betting gains traction,” Baker and his colleagues write, “it potentially undermines government efforts aimed at promoting savings through tax incentives and financial literacy programs.” 

Baker said sports betting is clearly bringing in new revenue to states. “We’re just saying there are trade-offs if you’re concerned about household finances or the fragility of low-income households,” he said.

According to Baker, the full impact of sports betting is still unknown, because spending in the states that have legalized it is still rising. “It hasn’t plateaued yet,” he said. “We don’t yet know where this lands or stabilizes.”