Research highlights the toll of legalized sports betting in the US

In 2018, the US Supreme Court struck down a law that restricted legal sports betting. This landmark decision enabled the expansion of online and retail sports betting across the country, creating one of the largest and most competitive markets on the globe.

Millions of Americans have access to legal betting on sports

Considering the decision that struck down PASPA, lawmakers in each state were given the option to legalize and regulate wagering. It didn't take long for the market across the country to flourish, considering that by now, 38 states as well as Washington DC offer some form of legal sports betting.

In a dozen more states, lawmakers are either trying to legalize the activity or it is currently on hold and waiting for another try during the next legislative session. Whatever the case is, most of the country offers legal wagering on sports and millions of Americans have the option to place bets on their favorite sports teams.

Importantly, the legal betting sector guarantees that the bettors have access to a fair and regulated form of the activity. Comprehensive gambling self-exclusion tools and limits allow the customers to better control their gambling, while regulators in each state monitor the services provided by licensed operators.

Football is one of the most popular sports US bettors like to wager on.

Despite the benefits it brings, sports wagering raises concerns

One of the major benefits of legal wagering is tax revenue. Those providers pay taxes on their revenue and contribute by settling fees related to licensing.

As a result, proceeds from legal betting benefit different state and municipal programs across the country. Not unexpectedly, resources from betting tax revenue are also dedicated toward the treatment of problem gambling, as well as programs that help raise awareness of the dangers of excessive gambling.

In short, legal sports betting stands out with key benefits, including:

• Offering bettors and sports fans access to a legal form of the activity
• Generating tax revenue
• Decreasing the share of the black market
• Regulating the sector, providing responsible gambling tools
• Creating new engagement opportunities for sports teams through sponsorships

Besides tax revenue, legal betting is vital for many professional and collegiate teams that benefit from extra funding through gambling sponsorships. Despite all the benefits legal sports betting brings, fears about excessive gambling and the detrimental impact of the activity on consumer finances continue to mount.

Two recent research papers analyzed the impact of legal betting. The first one focused on the financial consequences of the activity, while the second one dove into the impact of wagering on vulnerable households.

Legal betting impacts the consumers' financial health

Experts Brett Hollenbeck with the University of California, Los Angeles (UCLA) - Anderson School of Management, Poet Larsen from the Marshall School of Business - University of Southern California and Davide Proserpio with Marshall School of Business - University of Southern California, are the authors behind the study titled "The Financial Consequences of Legalized Sports Gambling," which was released earlier this month.

Notably, the recent research uncovered that the overall consumers' financial health is "modestly deteriorating as the average credit score in states that legalize sports gambling decreases by roughly 0.3%." While the researchers explained that the decrease in the average credit score is small, they noted that it is also significant.

While some restrictions may apply in different states, bookmakers usually accept credit cards.

Interestingly, The Financial Consequences of Legalized Sports Gambling study found that the aforementioned average credit score decrease is approximately three times greater in states that allow mobile or online sports wagering. This discovery suggests that "legal sports gambling does worsen consumer financial health, especially so when mobile access is allowed," as described by the recent study.

What's also interesting is that states with legalized betting recorded a decrease in credit card delinquencies. At the same time, a restriction on credits achieved through lower credit limits and a "higher ratio of secured to unsecured loans" is observed. Those findings, the researchers said, suggest that financial institutions "may be reducing their risk exposure in states with legal mobile sports gambling."

Focusing on demographics, the newly released research highlighted that there wasn't a significant difference between the results for men, women, old and young individuals. Yet, a pattern identified that the negative effect of betting was the strongest among groups that included young men with low income.

Spending on wagering increases, investments decrease

The second research, released in July, was titled "Gambling Away Stability: Sports Betting's Impact on Vulnerable Households." As its title suggests, the research dove into the impact of wagering on vulnerable households, uncovering interesting trends.

Scott R. Baker with Northwestern University and Justin Balthrop from the University of Kansas were among the experts that played a key role for the 82-page study. Mark J. Johnson and Jason D. Kotter with the Brigham Young University - Department of Finance, along with Kevin Pisciotta from the University of Kansas - School of Business are also among the authors of the recent study.

Importantly, the research uncovered how legal betting affects households' debt, spending, management decisions and investments. A concerning trend was outlined in the study which found that in some cases, bettors used money on sports rather than using it for investments that may bring long or short-term value.

"Importantly, we find that increased online sports betting substitutes primarily for positive expected value risky investments," reads the Gambling Away Stability: Sports Betting's Impact on Vulnerable Households report. Even more concerning, the researchers uncovered that sports betting results in a "large decrease in net deposits to traditional brokerage accounts, especially among financially constrained households."

Besides directing funds that otherwise would've been used for "positive expected value risky investments," the report suggests that the increase in betting spending also resulted in growth in entertainment-related expenses.

The aforementioned two factors have a detrimental impact on the financial stability of families across the country. The increase in entertainment spending, in combination with the allocation of funds toward wagering instead of investments results in an increase in financial instability.

As a result, impacted individuals and families experience increased credit card debt, decreased credit availability, as well as "a higher incidence rate of overdrawing bank accounts," the new study warns. This otherwise means that legal betting activities impact not only investments but create financial difficulties, especially for constrained households.

Limits and education to help reduce problem gambling

The two research papers sound the alarm about the impact of legal wagering, especially on vulnerable households. In the context of the expanding market, the genie is out of the bottle already so attempts to revert what is done is likely impossible.

Yet, with the help of robust research, analysis of market conditions and consumer behavior, lawmakers and licensed operators can work together to decrease problem gambling and gambling harm. While monitoring is one way to reach people who may be betting more than they can afford to, prevention is surely another way.

With the help of comprehensive responsible gambling campaigns that promote the use of betting, spending and time limits, as well as interactive education, consumers across the country can gain the knowledge needed to better manage their finances and restrict their losses to sports betting.

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