The surge in online sports betting is affecting the way individuals invest.

The surge in online sports betting is negatively impacting personal finances, particularly for those already struggling financially.

The paper concludes that since the Supreme Court overturned the federal law prohibiting sports betting in 2018, it has grown rapidly and has become a lucrative industry, with 38 states legalizing it and generating over $120 billion in total bets and $11 billion in revenue in 2023 alone.

The state has benefited financially from gambling, but it has come at a significant personal cost to gamblers and their families. Those who participate tend to invest less and have higher debt levels.

The authors concluded that sports betting not only increases betting activity but also results in higher credit card balances, less available credit, a decrease in net investments, and an increase in lottery play.

The authors observed that financially constrained households experienced these negative effects more prominently. Although the term was not specified, it is implied that this group typically has lower savings, lower cash reserves to cover expenses, higher debt levels, and lower net worth.

Investing takes a hit

In states where gambling is legal, a quarterly panel of 230,171 households was used by the authors. Approximately 7.7% of these households made online sports bets, with an average of $1,100 per household annually.

The study revealed that there is a significant decrease in net deposits to traditional brokerage accounts among individuals who gamble on sports, particularly in the stock market.

According to the authors, legalization of sports betting results in a nearly 14% decrease in net investments by bettors, with each dollar spent on sports betting reducing net investment by $2.13.

More debt, overdrawn bank accounts

But the implications are much broader.

The authors stated that an increase in betting and consumption leads to financial instability, resulting in decreased credit availability, increased credit card debt, and a higher incidence rate of overdrawing bank accounts.

Financially constrained households are not simply replacing one form of entertainment spending with another, such as shifting from lottery betting to sports betting. Instead, they are accumulating higher credit card debt to fund an addictive and losing proposition.

The largest increase in spending on sports gambling relative to income was experienced by the bottom one-third of households.

Bettors vs. non-bettors

There were notable differences between the characteristics of bettors and non-bettors.

Although both groups had similar incomes, bettors exhibited riskier behavior. They were more than twice as likely as non-bettors to have ever invested in crypto or ever overdrawn their bank account. They were four times more likely to have played online poker or purchased lottery tickets.

Several studies have found that low‐income investors tend to engage in more gambling‐related activity, including excessive betting on state lotteries and risky, lottery‐type stocks, which contributes to their overweight risky profile.

In a pickle

The government's decision to legalize and expand sports gambling, despite the majority of people losing money, creates a dilemma for policymakers.

The government's stance is that adults have the right to spend their money as they see fit, and this is necessary for our financial needs.

Governments prioritize other objectives, such as promoting retirement savings, which clash with encouraging gambling.

Government efforts to promote savings through tax incentives and financial literacy programs may be undermined by the growing popularity of legalized sports betting, according to the authors.

"Policymakers should take into account the potential impact of betting on diverting funds from savings and investment accounts, particularly for households with limited resources, which can affect their financial stability and long-term wealth accumulation."