A recent working paper titled Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households has sparked a significant discussion in the financial community, revealing a shift in consumer behavior: gamblers are increasingly choosing to place their money in sports betting rather than traditional investments like stocks. According to the study, for every dollar spent on sports gambling, net investments in stocks and other financial instruments decline by just over two dollars.
This startling finding highlights a growing trend where financial resources that could have been allocated towards long-term wealth-building activities are instead being funneled into sports betting, a recreational activity that has seen a surge in popularity since the legalization of sports betting in most U.S. states beginning in 2018.
From investment to entertainment
The study’s authors argue that sports betting is increasingly seen by some as an alternative to investing, particularly among younger, tech-savvy individuals who have been drawn into the gambling sphere by the ease of online betting platforms.
The research shows a clear inverse relationship between sports betting and traditional investing. As sports betting increases, investments in stocks decrease, suggesting that money is being diverted from potentially more stable financial instruments into high-risk betting activities.
One of the key points raised by the study is the way consumers frame their spending on sports betting. “They talk about spending on sports betting as a negative expected value investment compared to other positive expected value investments,” one of the researchers commented.
However, this perspective is not shared by all. The American Gaming Association (AGA) responded to the study by emphasizing that sports betting is primarily an entertainment option, not an investment strategy.
“That’s just not how consumers think about spending their entertainment dollars on sports. It is not an investment, it’s an entertainment option,” the association stated, pushing back against the notion that sports betting is directly competing with stock market investments for consumers’ dollars.
Financial impact
Beyond just diverting money from stocks, the rise in sports betting has other financial implications. Kyla Scanlon, a financial educator and commentator, pointed out in a recent social media post that this shift also has repercussions on savings rates, credit card debt, and overall financial health.
“But the money going toward gambling also reduces savings, increases credit card debt, results in overdrawn accounts, and an increase in lottery play. That’s not ‘entertainment’ money,” she noted, challenging the AGA’s stance that gambling dollars would not otherwise be invested.
Scanlon’s insights align with broader concerns raised by financial experts who warn that the blurring of lines between investing and gambling could have serious consequences for individuals, particularly those in vulnerable financial situations. The data suggests that the opportunity cost of gambling extends beyond missed investments, potentially undermining financial security through increased debt and decreased savings.
The expansion of legalized sports betting in the U.S. has been rapid and widespread, following a 2018 Supreme Court decision that struck down a federal ban on the practice. Since then, numerous states have moved quickly to legalize and regulate sports betting, leading to a booming industry. While this has provided states with new revenue streams, it has also led to increased concerns about the social and economic impacts of expanded gambling.
The research presented in Gambling Away Stability adds weight to these concerns, suggesting that the rise in sports betting may be contributing to broader financial instability, particularly among those who might be less able to afford such losses.
Investing vs. gambling
One of the most compelling aspects of the study is its exploration of the fine line between investing and gambling. In the short term, the study notes, it can be difficult to distinguish between the two, as both involve risk and the potential for reward.
However, over the long term, the differences become clearer, with investing typically offering more stable and predictable returns, while gambling is characterized by high volatility and negative expected value.
This distinction is critical, as it underscores the different psychological and financial outcomes associated with each activity. Investing is generally aimed at building wealth over time, with a focus on long-term financial security. Gambling, on the other hand, is often driven by the thrill of immediate gratification, which can lead to risky behavior and significant financial losses.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
