Political leaders and policymakers have expressed concern about the financial hardships facing many families and extolled the value of various government-sponsored savings plans, while at the same time legalizing sports betting and defending an industry that directly undermines the goal of saving for the future.
That’s the finding of a major new study that looked at the impact of sports betting on household finances in the first six years after the U.S. Supreme Court paved the way for legalizing sports betting in 2018. The study found that the legalization of online sports betting hasn’t led people to divert funds from other entertainment to this new sector, but rather has led to overspending at the expense of savings in investment accounts, especially among the most economically vulnerable households.
The study found that sports betting is associated with “significant declines” in deposits to brokerage accounts, along with “decreased credit utilization, increased credit card debt, and higher bank account overdraft rates.” Overall, the researchers said, access to online sports betting “exacerbates the financial difficulties faced by economically disadvantaged households.”
The study defined constrained households based on low savings rates, high credit card debt and a history of bank overdrafts.
Massachusetts joined the sports betting wave last year, becoming one of 38 states and Washington, D.C., where sports betting is legal.
Scott Baker, an associate professor at Northwestern University’s Kellogg School of Management and lead author of the report, said the main question the study sought to answer was whether people turned to sports betting instead, such as going to the movies or spending disposable income on other entertainment, or redirecting money they’d already spent on other types of gambling.
Using financial data from 230,000 US households, the researchers found that rather than reducing other spending, the introduction of online sports betting led to new excess spending and “significantly reduced household savings allocations.”
“Decreasing credit card payments and rising debt levels suggest that these households are not simply shifting funds from one entertainment to another, but are increasing their debt to fund addictive, losing bets,” the authors write.
Baker said in an interview that what he’s seeing with sports betting is “people going over budget and struggling to make ends meet.”
The study, titled “Gambling for Stability: The Impact of Sports Betting on Vulnerable Households,” found that the legalization of sports betting led to a 14% decrease in household savings in brokerage investment accounts, resulting in approximately $2 decrease in net investments for every dollar spent on sports.
Among households that bet on sports online (about 8% of all households), the average annual amount spent on sports betting was $1,100, but households with low savings spent 32% more of their income on sports betting than did higher-income households.
Unlike casino gambling, which has grown gradually over decades, the 38 states that have rushed to legalize sports betting since 2018 have done so with little evidence about its effects, said Rachel Bolberg, a professor at the University of Massachusetts Amherst School of Public Health and a leading gambling expert. “We’re in the middle of a giant social experiment,” she said.
Volberg said she wasn’t surprised by the study’s findings. “It’s pretty consistent with what we know about the lottery, which is that lower-income people tend to spend a larger percentage of their income on lottery tickets than wealthier people,” she said.
Baker said sports betting is already on the decline and policymakers should look for ways to mitigate its harmful effects. Baker said the negative effects on economically disadvantaged households seem most closely associated with online sports betting, and an argument could be made that the few states that have not yet legalized it should limit it to in-person gambling.
While states and the federal government have tried to encourage savings and investment, the rush to legalize sports betting appears to be in direct conflict with those efforts, as well as sending conflicting messages about the value of long-term investment, the study said. “As legalized sports betting gains momentum, it could undermine government efforts to promote savings through tax incentives and financial literacy programs,” Baker and colleagues wrote.
Baker said sports betting clearly brings new revenue to the state. “I’m just saying that if you’re concerned about household finances and the vulnerability of low-income households, there are trade-offs,” he said.
Baker said the overall impact of sports betting is still unclear because spending is still increasing in states that have legalized sports betting. “We haven’t plateaued yet,” he said. “We don’t know yet where this will settle or stabilize.”