The adage "the stock market is a casino" is frequently used, but some gamblers are adopting it literally and selling their investments to finance their excessive sports betting.

This is supported by a recently released working paper by academics from Brigham Young University (BYU), Northwestern University, and the University of Kansas titled "Gambling Away Stability: Sports Betting's Impact on Vulnerable Households." According to the research team's paper, allocations for sports betting haven't replaced household spending on other types of wagering since the 2018 Supreme Court ruling on the Professional and Amateur Sports Protection Act (PASPA). However, the money spent on sports wagering frequently comes at the expense of "positive expected value" activities, such as stock investing.

"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 study examined every state-level legalization of sports betting that occurred after PAPSA and ended in September 2023. They assert that since PAPSA, a bettor's allocations to equities and other investments have decreased by $2 for every $1 they divert to sports betting.

It's Tough to Win at Stocks via Betting

The assertions made in "Gambling Away Stability" may be concerning because the target market for sports betting, which is essentially the age group of 21 to 35, is also one that ought to be taking advantage of time's favor and using it to their advantage in order to make profitable investments.

Assuming 6% average annualized returns in our hypothetical example, an investor starting with $10,000 in a basic broad market fund and adding $500 per month for ten years will have $99,145 at the end of the ten years.

That illustrates the profitability of stock investments, especially when held for extended periods of time. The example also highlights how difficult it is to use sports betting to beat stocks. Only 1% (or less) of sports bettors are probably able to consistently attain it.

The authors of the article contend that regulators should take note of the fact that certain gamblers are using money intended for sports bets instead of stocks.

“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.”

Additional Financial Consequences of Sports Betting

According to a recent study by the Universities of California Los Angeles (UCLA) and Southern California (USC), in jurisdictions where mobile sports wagering is legal, credit scores are slightly dropping and the number of bankruptcy filings is gradually increasing.

Similar observations were made by the researchers behind "Gambling Away Stability," who pointed out that households that engage in this type of behavior may face bank overdraft fees and restricted access to credit because sports wagering frequently occurs in addition to other forms of betting, not in place of them.

“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.”