While states have been celebrating the new tax revenue from sports gambling, recent studies have uncovered a concerning link. These studies show that the burgeoning industry is associated with lower consumer credit scores, higher credit card debt, and less household savings. With the convenience of cellphones providing easy access, gamblers are betting more frequently, heightening concerns about problem gambling and its financial fallout for sports fans.

Unraveling the Financial Impact of Sports Gambling

Research Findings on Credit and Bankruptcy

In an August working paper, researchers at the University of California, Los Angeles and the University of Southern California discovered that access to legal online sports betting led to lower credit scores and higher rates of bankruptcies. Their study examined credit bureau data of over 4 million American consumers. As stated in the report, "Our results ultimately suggest that gambling legalization does harm consumer financial health." This paper did not offer specific solutions but emphasized the need for policymakers to protect residents at risk of becoming problem gamblers. It warned that if no action is taken, the large increase in sports betting will likely lead to a long-term increase in financial stress for many consumers.

Another study, led by a Southern Methodist University professor and released in June, found that problem gambling increased in states that introduced online casino gambling alongside online sports gambling. This highlights the potential for a more widespread issue.

Impact on Household Finances

A working paper from researchers at several U.S. universities revealed that legalized sports betting drained household finances more than other types of gambling and diverted money from saving and investing. This research comes at a time when some state lawmakers are pursuing new restrictions on sports gambling and federal lawmakers are considering stricter regulations.

For example, in New Jersey, lawmakers introduced legislation to ban so-called prop bets on college athletes. If approved, it would join 13 other states with such bans. The measure has advanced out of an Assembly committee, showing the growing concern over certain aspects of sports gambling.

Industry Response and Doubts

Joe Maloney, senior vice president of strategic communications at the American Gaming Association, argued that legal betting is one of the most regulated industries. He pointed out that it brings new revenue streams to states and brings many consumers out of illegal betting markets, providing more transparency and funds for problem gambling programs.

However, he is skeptical of the idea that sports gambling harms household finances. He noted that Americans had record 401(k) holdings and record mutual fund ownership last year. He also highlighted a separate research paper that determined the rapid rise of sports betting has not led to an increase in adverse mental health outcomes or financial difficulties.

Financial Displacement by Sports Betting

Justin Balthrop, an assistant professor of finance at the University of Kansas, expected that legalized sports gambling would displace other forms of entertainment spending. His research, titled "Gambling Away Stability," found that legalized betting led households to spend more on both entertainment and betting while putting less in savings and investment accounts.

The paper examined financial transaction data from over 230,000 households across 26 states with legal sports betting between 2018 and 2023. In households that placed bets, net investments dropped by 14% after legalization, which is a significant figure when considering the expected long-term gains of compound interest and rising stock prices.

Researchers also found that sports betting disproportionately affects lower-income households as they accumulate credit card debt and overdraft checking accounts. Balthrop emphasized the need for policymakers to provide more education and transparency to consumers.

State Perspectives and Regulations

West Virginia state Sen. Jason Barrett believes that most people who have placed bets since the state legalized sports gambling in 2018 did so for fun and not with the expectation of making money. He noted that sports betting is still a small fraction of overall gambling spending in the state.

The American Gaming Association reported that commercial gambling revenues hit a record $66.66 billion last year, with a 10.3% increase over 2022. Sports gaming revenues are also exploding, with a 46% increase last year when sports betting became available in five new states. Missouri regulators are currently working on rules and a licensing framework for sports betting after its recent approval.

Jan Zimmerman, chair of the Missouri Gaming Commission, said the state hopes to launch sports betting by summer. While the agency has heard concerns about increased problem gambling, regulators in other states have not reported a significant increase. The gaming commission will funnel a portion of sports betting revenues to mental health work to address problem gambling.