A recent working paper titled Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households presents startling findings on the effects of sports gambling on vulnerable households. While investments have turned sports gambling into a multi-billion-dollar business, the business has returned worrisome consequences for the investors themselves.
Rather than seeing an increase in the stock brokerage accounts of investors, the study finds that for every dollar spent on sports gambling, net investments in stocks and other financial instruments dropped by just over $2. That means that investors are outspending their bets by over 2:1, indicating an unsustainable trend among the people on whom the recreational business depends.
negative expected value risky bets crowd out positive expected value investments.”
The study used household-level transaction data and a staggered difference-in-differences framework, finding that “negative expected value risky bets crowd out positive expected value investments.” More worrisome, the study uncovered that the effects are concentrated “among financially constrained households, who become further constrained as credit card debt increases, available credit decreases, and overdraft frequency rises.” Thus vulnerable households, perhaps least surprisingly, are the most vulnerable to the effects of sports gambling.
The researchers went on to say: “not only does sports betting lead to increased betting activity, but it also leads to higher credit card balances, less available credit, a reduction in net investments, and an increase in lottery play… These findings suggest that while sports betting offers new avenues for state revenue, it also introduces significant financial risks to local residents, especially for already constrained households.”
The study concludes that to protect vulnerable households, policymakers need to consider “targeted interventions, stricter regulation of gambling advertisements, and support for safer investment opportunities.”