Researchers have begun studying the impact of legalized sports betting on American households, and early results paint a disturbing picture of how its expansion has affected bettors’ finances.
In another paper published this month, researchers found that households in states where gambling was legalized saved significantly less and invested less in assets such as stocks that are generally considered more financially sound.
At the same time, in states where sports betting was legalized, the overall creditworthiness of citizens deteriorated, while the number of bankruptcies increased.
“Legalization is not a foregone conclusion,” says Scott Baker, associate professor of finance at Northwestern University’s Kellogg School of Management and lead author of one of the papers.
Still, the “lunch” for the state’s coffers was substantial: New York, which imposes a 51% tax rate on mobile sports betting, collected $862 million in tax revenue from the activity last year, and more than $2 billion over the past three years, according to Legal Sports Report, with the majority going to education. New Jersey, the first state to allow online sports betting, has a much lower tax rate — though it is considering increasing it — but has still collected $549 million in tax revenue from sports betting since 2018.
Online sports betting is legal in 30 states, plus the District of Columbia and Puerto Rico, and the authors estimate that monthly wagers have grown from an average of $1.1 billion per month in 2019 to $14 billion by January 2024. North Carolina became the latest state to offer online sports betting earlier this year.
However, according to the authors of the study, costs were also incurred.
Using data sets showing deposits and withdrawals to and from online sports betting platforms such as FanDuel and DraftKings, and to and from stock brokerage accounts such as Charles Schwab, E-Trade, Vanguard and Fidelity, Baker and his co-authors found that legalization has led to higher credit card balances, reduced access to credit, a decline in longer-term and higher-interest investments, and an increase in lottery gambling—with the impact particularly pronounced among financially constrained households.
“It’s not just a matter of moving entertainment money from one company to another,” Baker said. “Rather, they’re tapping into sources of their household budget that politicians are trying to increase,” such as stock investment accounts, he said.
And the impact is not limited to an individual: Baker’s team found that bettors were more likely to receive pandemic-era child tax credits regardless of income, suggesting they are more likely to have children.
In another study led by Brett Hollenbeck, an associate professor of marketing at UCLA’s Anderson School of Management, researchers found that the credit scores of states with sports betting fell by a statistically significant, if modest, amount compared to states without sports betting, while bankruptcies increased by 28% and debts sent to collection agencies increased by 8%. Auto loan delinquencies and the use of debt consolidation loans also increased, the researchers said.
“While many consumers genuinely enjoy legal gambling and states benefit in the form of additional tax revenue, there are corresponding concerns that the introduction of sports betting and the ease with which consumers can now bet online will negatively impact consumers’ financial health,” they write. “Our paper provides evidence that these concerns are well-founded.”
The papers have not yet been peer-reviewed, but both attempted to rule out other causes of the decline in household financial health, such as national economic trends that may also have influenced household spending and investment decisions. Instead, they find that the timing of legalization in a given state tends to coincide precisely with the start of household financial deterioration.
Some lawmakers have taken note of the negative impacts. In New Jersey, Senate President Nicholas Scutari recently introduced a bill that would create a diversion court for the treatment of gambling addiction, citing the fact that the proliferation of gambling has “created unbridled opportunities for individuals with gambling addictions or gambling addictions to descend into destructive behavior.”
The New York State Gaming Commission reported a 26% increase in problem gambling calls to the Office of Addiction Services and Supports from 2021 to 2022, the most recent period for which data was released.
Yet states continue to view gambling as a cash cow. While Legal Sports Report Editor-in-Chief Adam Candee said it would be unfair to characterize states’ efforts to legalize sports betting as a search for a panacea for their budget woes, many of them are now introducing legislation to profit even more from the growth of gambling, whether through higher tax rates or by replacing existing taxes with gambling revenue.
More about sports betting
In the meantime, the industry will continue to grow. However, Candee said growth will slow until California and Texas decide to legalize sports betting, but there are no signs that will happen anytime soon.
However, he said that as the money continues to flow, the gambling platforms will gain more and more influence to push through some form of legalized gambling in these states (not to mention all the others), thus enabling the legalization of sports betting.
Earlier this year, major sports betting platforms formed the Responsible Online Gaming Association to address problem gambling. Members have committed more than $20 million to fund research, education and awareness campaigns, as well as developing a “clearinghouse” for players with high-risk characteristics.
However, there may be a limit to how much the platforms will try to restrict their own activities.
“Ultimately, most of the major sportsbooks in the U.S. have to answer to their shareholders,” Candee said, noting that the largest, including DraftKings, FanDuel and BetMGM, are all publicly traded. “And those shareholders want to see growth and profit.”
This article was originally published on NBCNews.com.
