LAWRENCE — Playing the Powerball lottery. Pulling a slot machine handle. Putting money on horse races: all these forms of gambling offer dangerous opportunities for quick cash.
But new research shows there are significant differences between online sports betting and other legal forms of gambling.
“We’re finding that people’s household balance sheets are being significantly shaped by the rise of online sports betting,” said Kevin Pisciotta, an assistant professor of finance at the University of Kansas.
Kevin Pisciotta
His new working paper, “Gambling Losses Stability: The Impact of Sports Betting on Vulnerable Households,” shows that online sports betting not only leads to increased gambling activity, but also to higher credit card balances, lower available credit, and reduced net investment. These effects are particularly pronounced among financially constrained households.
Pisciotta points out a few reasons why this form of betting is unique.
“One possible reason is that people believe there is some role for the outcome. Most people understand that slot machines are random. With sports betting, people feel like they’re investing a little bit and might have some advantage, even though on average they don’t,” he said.
“And with sports, you go to a bar, you’re with your friends, you’re watching the game in real time, and you’re reacting to what you’re watching. It’s a community engaged in what you’re actually betting on. So there’s more of an environmental and social aspect to it. And of course there’s very little friction in betting online using your mobile phone.”
The study, co-authored by Justin Balthrop, an assistant professor of finance at the University of Kansas, Scott Baker of Northwestern University, and Mark Johnson and Jason Cotter of Brigham Young University, offered two main findings.
People use funds that they have deposited in savings accounts to place online sports bets, as well as the credit available through credit cards.
“Your credit card balance goes up. Your available balance goes down. And you pay off your card,” said Pisciotta, who acknowledged that the last time he personally bet on a game was during the March Madness basketball tournament.
Much of this increase in activity was driven by the 2018 Supreme Court ruling that overturned the federal ban on sports betting, leading to the rapid introduction of bills in states outside of Nevada to legalize both in-person and online gambling, which could generate more than $120 billion in wagers and $11 billion in revenue in 2023 alone.
Pisciotta’s team came to these conclusions using a proprietary dataset of consumer transactions obtained from a U.S. data aggregation and analytics platform. The full database includes more than 60 million U.S. users and reveals billions of transactions from 2010 to September 2023.
“You can see, for example, how an individual’s funds have been moved from a Vanguard account to DraftKings, and you can see how these things change over time,” he said.
“Sports betting tends to be addictive. Some people think it has a half-life: ‘people want to try it, they like some aspects of it, but eventually they realise they’re not winning and they turn the app off.’ But in fact the opposite is true. Not only are we seeing an increase in new users, but even those who tend to lose are betting more over time.”
Did he get any backlash from Las Vegas?
“Directly, no. Indirectly, yes,” Pisciotta said.
He noted that gambling industry representatives have disputed his findings, arguing that people often spend their hard-earned money on products and activities that others shun, such as video games, YouTube, Amazon, Starbucks, etc. Therefore, there is no need to worry.
He said, “Can you provide evidence that these people were running up large credit card balances to buy Frappuccinos? No way.”
Now in his sixth year at the University of Kansas, Pisciotta focuses on initial public offerings, sell-side analyst research and innovation. This is the first time he’s applied his expertise to studying vice and recreational consumption.
“We’re not trying to eliminate sports betting. Our goal is to make a clear prediction of what will happen as a result of the legalization of online sports betting, and the results will not necessarily be good for people who place bets,” he said.
“If the sports betting industry continues to drag customers along and spend all their money they can, I’m not sure that’s how the industry will remain sustainable. We hope that our research will inform the discussion about how to improve the environment and the landscape, but that will take time.”
