Posted on: August 15, 2024, 09:01h.
Last updated on: August 15, 2024, 09:01h.
It’s often that quipped that “the stock market is a casino,” but some bettors are taking that faulty phrase to heart and selling investments to fund sports wagering habits.
That according to the recently published working paper Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households, which was authored by researchers from Brigham Young University (BYU), Northwestern University, and the University of Kansas. In the paper, the research team asserts that following the 2018 Supreme Court ruling on the Professional and Amateur Sports Protection Act (PASPA), allocations for sports betting haven’t displaced the expenditures households directed to other forms of wagering, but the dollars directed to sports wagering often come at the expense of “positive expected value” pursuits, including investing in stocks.
In contrast with the sizable effects on equity investments, we find that increases in sports betting do not coincide with decreases in participation in lotteries or other online gambling outlets like poker sites,” according to the study. “Cryptocurrency exchanges see a small decline in deposits, but of a much smaller magnitude than either the sports bets themselves or the declines in equity investments. Overall, these results suggest that most of the displacement driven by increases in sports betting falls on positive expected value ‘investments’ rather than other types of negative expected value ‘bets.’”
The researchers noted they studied all state-level sports wagering legalizations post-PAPSA through September 2023. They claim that since PAPSA, for every $1 a bettor directed to sports wagering, there was a $2 drop in that person’s allocations to stocks and other investments.
It’s Hard to Beat Stocks with Betting
What makes the claims detailed in Gambling Away Stability potentially alarming is that the prime demographic for sports wagering — roughly the 21 to 35 age demographic — is also one that should be capitalizing on the advantage of having time on their side and leveraging it for investment success.
In a hypothetical example that assumes average annualized returns of 6%, an investor that starts with a basic broad market fund with $10,000 and contributes $500 to that fund every month for 10 years will have $99,145 at the end of that decade.
That speaks to the viability of investing in equities, particularly over long holding periods. The example also underscores the difficulty in attempting to outperform equities via sports wagering. It’s likely something just 1% (or fewer) of sports bettors can achieve with consistency.
With some bettors diverting capital from stocks to fund sports wagers, the researchers behind Gambling Away Stability argue that’s a signal policymakers cannot ignore.
“Policymakers should consider how the allure of betting might divert funds from savings and investment accounts, particularly for constrained households, which can affect household financial stability and long-term wealth accumulation,” they observed. “Understanding these dynamics is important for crafting policies that mitigate potential negative impacts while allowing for the economic benefits and entertainment value of legalized sports betting.”
Other Financial Implications from Sports Betting
A recent study by the University of California Los Angeles (UCLA) and the University of Southern California (USC) showed that credit scores are modestly declining and bankruptcy filings are ticking higher in states that allow mobile sports wagering.
The researchers behind Gambling Away Stability made a similar observation, noting that because sports wagering often comes in addition to, not at the expense of other forms of betting, households engaging in such behavior can be subjected to bank overdraft fees and reduced access to credit.
“Financially constrained households increase their credit card balances by about $368 relative to less constrained households, an 8% increase in credit card debt relative to the sample mean,” concludes the study. “Additionally, we find that more constrained households reduce their credit card payments and increase overdrafts of their bank account. Combined, these results suggest that sports betting exacerbates the financial constraints of households already operating with less flexibility. The reduced payments towards credit card bills, coupled with rising debt levels, indicate that these households are not merely shifting funds from one type of entertainment to another but are instead becoming more indebted to fund an addictive losing proposition.”
