When it comes to finances, sports betting may be one of the gambling options you want to avoid.
Sports betting can lead to poor debt management and a negative impact on credit scores, and two recent studies have found that gamblers are more likely to spend more and invest less, with the effects being felt most by those who are financially vulnerable.
To make matters worse, a third study suggests that the way sports betting has evolved could make it one of the most addictive forms of gambling.
Six years after gambling was legalized in the United States, it is time for policymakers to step in and regulate this nascent industry to prevent people from giving in to their worst impulses, before it’s too late.
“As individuals, as voters and as policymakers, I think our results are worrying,” study co-author Justin Balthrop, an assistant professor of finance at the University of Kansas, told Yahoo Finance.
“But it’s very difficult to prescribe before a diagnosis has been made. And I think what our paper is really trying to do is to get a very precise estimate of what the problem is exactly.”
The economic impact of sports betting
Sports betting began to take hold after the Supreme Court struck down the Professional and Amateur Sports Protection Act in May 2018, allowing states to enact their own sports betting laws.
So far, sports betting has been legalized in 38 states and the District of Columbia through retail and online sportsbooks, and revenue has soared, up 30.3% year-over-year to $7.56 billion in the year to date through July.
Balthrop described himself as a “fairly avid, high-stakes sports bettor,” and the study took advantage of the gradual phase-in of sports betting across the U.S. after it was legalized, giving him and his colleagues time to understand the before-and-after effects of the activity.
What he found was that for every $1 deposited into an online sportsbook, these households’ investment allocations fell by $2. The compounding effect from $1 to $2 is due to increased non-betting spending to support gambling — think additional streaming services or higher sports bar tabs to watch games.
Additionally, Balthrop found that sports betting increases the number of times households make withdrawals from their bank accounts, and the effect is even more severe for financially constrained households, who make fewer credit card payments and increase their balances.
“The core of this impact is happening to households who may not have the means to afford it,” Balthrop said.
The story continues
Davide Proserpio and his colleagues found similar worrying results in their study: Overall, states’ average credit scores dropped by 0.3% after legalizing sports betting. That figure tripled to 1% if the state allowed online sports betting.
Proserpio, an associate professor of marketing at the University of Southern California, said the fact that the study used the average credit score for the state’s entire population likely dilutes the actual impact on gamblers’ personal credit scores.
Additionally, states that have legalized sports betting, especially online betting, have seen an increase in bankruptcies, consolidation loans and collections, and lenders have restricted access to credit to protect themselves, Proserpio’s research found. Young, low-income men are more likely to be affected.
“It’s not just gambling that affects consumers’ financial situation on average,” he said. “It also affects some people who are already on low incomes and maybe have other kinds of (financial) problems.”
“Casino in your pocket”
While Balthrop and Proserpio documented the consequences of sports betting, their study did not explore why this particular form of gambling can be so harmful.
That’s where psychology researcher Dr. Jamie Torrance from Swansea University in the UK and his colleagues come in. They looked at a ton of studies on gambling from around the world in a technique called a scoping review and found a pattern that helps explain why sports betting has become so pernicious. It comes down to three factors: access, betting volume, and the illusion of control.
Historically, sports betting was time-consuming and “simple gambling,” Torrance said. To bet on a game, you had to call a booker or go to a betting shop. You could only bet on whether a team would win, lose or draw. And you had to wait until the game was over to find out the outcome of your bet.
“There’s a lot of research that shows the longer you wait to gamble, the less addictive and harmful the product is,” Torrance said.
That’s not the case anymore, as sports betting is readily accessible on mobile phones and is similar to slot machines.
“We’re basically carrying a casino in our pocket,” Torrance said.
Popular apps like DraftKings and FanDuel allow bettors to bet on any sport, any game, at any time, and not just on who will win the game but also the outcome of the next baseball pitch or field goal kick. The options are nearly endless, and the results come back faster.
“That’s a big problem,” he said.
Another big problem, Torrance said, is that sports bettors become convinced they can easily beat the odds, giving them an “illusion of control.”
They consider themselves sports experts. They watch every game, read every match report, maybe they subscribe to sports newsletters that give them the inside scoop. Maybe they were just a mediocre player 10 years ago.
“Sports betting tends to take advantage of people’s underestimation of their own expertise,” Balthrop said, echoing Torrance.
But like any other form of gambling, the game is rigged – the casino always wins.
“trade off”
Torrance’s research also sheds light on how sports betting will evolve, and his two big predictions are unsettling.
First, he expects to see sports betting companies adopt augmented reality, so that, for example, you can point your phone at a live sporting event and the app will give you different betting odds in real time.
Second, he expects these companies will provide very specific notifications to bettors based on their gambling behavior. A person might get a warning that a star player’s mother is having surgery this week and that it might affect the player’s performance, perhaps encouraging them to bet on that team.
“That kind of fosters the illusion of control that we discussed earlier,” he said.
The three researchers undertook these studies to provide important data on gambling and inform lawmakers who, frankly, may be more influenced by the tax revenue that sports betting brings in. But people who are in high debt or who don’t save for retirement will “burden societal costs” in the future, Balthrop said.
“There’s a trade-off here,” Proserpio agreed.
Australia has laid out a blueprint and recently introduced measures to slow the betting process to combat these devastating outcomes, but the clock is ticking in the United States as the sports betting industry evolves and grows.
Lawmakers in Missouri and Oklahoma have introduced bills to legalize the gambling industry, and two Democratic lawmakers introduced a bill this month that would allow the federal government to regulate advertising, betting and artificial intelligence in the gambling industry.
“I’d like to think that people across the pond have more time to reduce harm, but the reality is I don’t think that’s going to happen,” Torrance said. “In fact, I think we’re going to end up in the same situation as we are in the UK, where there’s a lot of harm from gambling.”
In other words, don’t bet on it.
Janna Herron is a senior columnist at Yahoo Finance. Follow her at X @JannaHerron.
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