The rapid growth of legal sports betting in the United States has been celebrated by many, but a recent study suggests this trend may be negatively impacting stock investments. The research, still awaiting peer review, indicates that as more money flows into sports betting, less is being allocated to stock investments by American households.
The study found that for every dollar spent on sports betting, net household investments decrease by approximately $2. “Our results suggest that access to online sports betting diminishes equity market engagement and exacerbates financial challenges for financially constrained households,” the researchers, a group of five academics, wrote.
American sports landscape
The landscape of American sports changed significantly in 2018 when the Supreme Court overturned a federal law that banned sports betting. This decision handed the authority to legalize sports gambling to individual states, and since then, 38 states have embraced it.
With sports betting now as easy as downloading an app, the industry has exploded. In January 2019, $1.1 billion was wagered in the U.S. That figure soared to $14 billion in January 2023, according to data from the Sports Book Review.
The study reveals that the average U.S. household bets about $1,100 annually, or $280 each quarter—a number that has continued to rise by $25 per quarter. Meanwhile, net investments typically declined by nearly 14% in the two to three years following the legalization of sports betting in a given state.
The study also highlights the disproportionate impact on financially constrained households, which tend to allocate a larger portion of their income to sports betting, thereby exacerbating their financial difficulties. “These households, already in precarious financial situations, are more likely to divert funds from their investment portfolios to betting,” the researchers noted. “Given that sports betting has a negative expected return, this trend underscores the potential for legalized sports gambling to worsen financial vulnerability and hardship.”
Supporting these findings, another recent working paper reported that areas with legalized sports gambling have seen declines in credit health. In these regions, credit scores have dropped by 1%, while debt collections and bankruptcies have surged by 8% and 28%, respectively.
“It’s never enough,” said Michelle Malkin, director of East Carolina University’s Gambling Research & Policy Initiative, in a previous interview. “There’s a relentless cycle of thinking, ‘I can solve my problems by continuing to gamble and getting that next win.'”
