Sports betting growth may be linked to financial woes, new studies find

Posted by Admin December 7, 2024 Gambling

Kevin Hardy
| New Hampshire Bulletin

While New Hampshire and other states have cheered the new tax revenue from sports gambling, some new studies have linked the burgeoning industry to lower consumer credit scores, higher credit card debt, and less household savings.

With access on their cellphones, gamblers can bet more often and easily than in traditional casinos, heightening concerns about problem gambling and the financial fallout for sports fans. The rate of gambling problems among sports bettors is at least twice as high as it is for other gamblers, according to the National Council on Problem Gambling.

Legal sports gambling is more widespread than ever. Missouri voters in November became the latest to approve it, making it legal in 39 states and the District of Columbia. Last year, Americans bet more than $121 billion on sports, according to the American Gaming Association. While betting revenues are exploding, the industry is still relatively young – only blossoming after a 2018 U.S. Supreme Court ruling opened the door for states to authorize sports gambling.

New Hampshire, which legalized sports betting in 2019, has seen participation increase in recent years.

In October 2020 – during the program’s first year – New Hampshire residents placed $40.2 million in total bets, known as the “handle.” The sole approved operator in the state, DraftKings, made $3.8 million that month and the state took in $1.8 million in revenue.

In October 2024, that handle had risen to $69.5 million, and the state’s revenue share was $2.4 million, a 33 percent increase.

In August, the New Hampshire Lottery Commission announced it had taken in a record $200.7 million in total gambling revenue in state fiscal year 2024, which ran from July 2023 to June 2024 – a 5 percent jump from the year before. Much of the increase was attributed to sports betting. The revenue is used to bolster the Education Trust Fund, which is expected to take in $1.2 billion in fiscal year 2025 from business taxes and other income sources.

So far, researchers have not reached a consensus about potential harms, though three papers released this year found poor financial results for consumers in states with legalized sports gambling.

In a working paper released in August, researchers at the University of California, Los Angeles and the University of Southern California determined access to legal online sports betting led to lower credit scores and higher rates of bankruptcies. That study examined credit bureau data of more than 4 million American consumers.

“Our results ultimately suggest that gambling legalization does harm consumer financial health,” the report said.

That paper did not assess specific solutions but called on policymakers to find ways to protect residents at risk of becoming problem gamblers.

“If no action is taken, it is highly likely that the large increase in sports betting will lead to a long-term increase in financial stress on many consumers and policymakers and financial regulators should be prepared for this.”

A study led by a Southern Methodist University professor released in June found problem gambling increased in states that introduced online casino gambling alongside online sports gambling.

Another working paper from researchers at several U.S. universities found legalized sports betting drained household finances more than other types of gambling and diverted money from saving and investing.

The research comes as some state lawmakers have pursued new restrictions on sports gambling and federal lawmakers have eyed stricter regulations. Last month, New Jersey lawmakers introduced legislation to ban so-called prop bets – bets on a particular player’s performance that may not affect the outcome of a game – on college athletes. If approved, it would join 13 other states that ban those bets. The measure has advanced out of an Assembly committee.

New Hampshire has a Council for Responsible Gambling, created in 2019 by the same statute that legalized sports betting. That five person council, whose commissioners are approved by the Executive Council, is chaired by Maura McCann, the marketing director for New Hampshire Lottery. It is charged with providing “education, advocacy and prevention services,“ according to its website.

In September, congressional Democrats introduced legislation that would implement minimum national standards and authorize research on the public health implications of sports betting. Among other provisions, the bill would ban sports book advertising during live sporting events, prohibit more than five deposits from gamblers in a 24-hour period, and prohibit artificial intelligence tools that create specialized promotions by tracking individual gambler habits. But it is unlikely to progress in the GOP-controlled House.

“State regulation is faint-hearted and half-baked,” Democratic U.S. Sen. Richard Blumenthal of Connecticut said at a news conference announcing the legislation. “That’s why we need a national standard – not to ban gambling, but simply to take back control over an industry that is out of bounds.”

Industry pushes back

Joe Maloney, senior vice president of strategic communications at the American Gaming Association, said legal betting is among the most regulated industries in the country.

Aside from providing new revenue streams for states, Maloney said, legal sports betting has brought many consumers out of the illegal betting markets, providing more transparency for consumers and money for problem gambling programs.

“You can go to any state that has yet to have an opportunity to erect a regulatory market and see a predatory and even more pervasive offshore, digital, illegal market that’s targeting consumers in those states,” he said.

Maloney pointed to long-standing research finding no correlation between financial hardship and proximity to casinos. But he acknowledged that it isn’t yet clear whether sports betting has a different effect.

“I think that topic needs to be further explored, because the scale of legalized gambling online and in the digital space is still very much in its infancy,” he said.

But Maloney is skeptical of the idea that sports gambling harms household finances. He noted that Americans last year had record 401(k) holdings and record mutual fund ownership.

Maloney highlighted a separate piece of recent academic research that determined the rapid rise of sports betting hasn’t led to an increase in adverse mental health outcomes or financial difficulties. The paper examined self-reported data on mental and financial health from nearly 2 million survey responses across multiple states with legalized betting.

The results were somewhat surprising to lead researcher Timothy Bersak, an associate professor of economics at Wofford College in South Carolina. He said the findings contradict a popular narrative that sports betting leads to widespread harms.

“Our results suggest that there’s not like a really large population of latent problem gamblers that would have these large gambling problems but for the prohibition on sports betting,” he said.

Bersak said his findings don’t negate other recent research: There is a segment of the population that is likely worse off because of sports betting, he said. But for now, a much larger share of the population said they are not being hurt and finding enjoyment from it.

“We really can’t have any sense of the long-term impacts at this point,” he said. “Because at least in the U.S., it’s only been around for at most six years.”

‘That money’s gone’

Justin Balthrop, an assistant professor of finance at the University of Kansas, expected that legalized sports gambling would displace other forms of entertainment spending. Maybe someone would forgo a night out, for instance, and instead put a few bucks on Sunday’s game.

But a paper he co-wrote – titled “Gambling Away Stability” – found that legalized betting led households to spend more on both entertainment and betting, while putting less in savings and investment accounts.

The paper examined financial transaction data from more than 230,000 households across 26 states with legal sports betting between 2018 and 2023. In households that placed bets, net investments dropped by 14 percent after legalization – a significant figure when factoring in the expected long-term gains of compound interest and rising stock prices.

“What’s happening is they’re pulling money from what I think we would argue are more long-term productive uses of their funds to do this instead,” Balthrop said.

Researchers found that sports betting disproportionately hurts lower-income households as they run up credit card debt and overdraft checking accounts.

Balthrop said policymakers should do more to provide education and transparency to consumers, so they know the full extent of the odds against them.

A gambler himself, Balthrop said bettors should go into every bet financially and mentally prepared to lose because most bettors don’t win.

“I would say the same thing as someone who goes to a casino: Pretend that the hundred bucks you’re bringing to the casino is an entry fee, and maybe you get to leave with some of it,” he said. “But you need to mentally know that money’s gone.”

West Virginia state Sen. Jason Barrett, a Republican, said he believes most people who have placed bets since the state legalized sports gambling in 2018 have done so for fun – not with the expectation of making money.

“The way I look at it is, if somebody decides that they’d rather spend $50 on the outcome of an NFL game as opposed to going out to the movies, I think they should have the right to do that,” he said. “I’m not aware that there are a lot of people that are doing this for a real investment.”

Barrett, the treasurer of a national group of state lawmakers that works on gambling issues, noted that sports betting is still just a fraction of the overall spending on gambling in West Virginia. The American Gaming Association reported sports betting last year brought in about $48 million in revenue in West Virginia; total casino revenues in the state reached nearly $806 million.

While problem betting is always a concern, he said he’s seen no evidence sports gambling has dramatically increased addiction.

“I don’t think all of a sudden that we’ve offered one new product through sports betting, that all of a sudden we’re going to create a bunch of gambling addicts,” he said, “or that people have this illusion that they’re somehow going to regularly beat the book, and that this is going to somehow replace their retirement.”

The American Gaming Association reported that commercial gambling revenues hit a record $66.66 billion last year – a 10.3 percent increase over 2022.

While casino revenues continue to rise, sports gaming revenues are exploding: Last year, when sports betting became available in five new states, the group reported a total of $11 billion in sports betting revenue – a 46 percent increase from the previous year. That figure does not include sportsbooks operating at tribal casinos.

Those figures will likely continue to rise as more states approve sports betting.

Missouri regulators are currently crafting rules and a licensing framework for sports betting following the narrow approval of the ballot initiative last month.

Jan Zimmerman, chair of the Missouri Gaming Commission, said the state hopes to launch sports betting by summer. While the agency has heard concerns from state residents about increased problem gambling associated with sports betting, Zimmerman said regulators in other states have not reported a significant uptick.

As it does with casinos, the gaming commission will funnel a portion of sports betting revenues to mental health work to address problem gambling. But because the initiative was passed as an amendment to the state constitution, the gaming commission has limited latitude to create new regulations or safeguards on sports betting.

“The constitutional language is that which was created by that initiative petition,” she said. “So, there’s no going back and maybe molding that to work better to fit our needs.”

If you need help

If you or someone you know is struggling with gambling, call New Hampshire’s problem gambling hotline at 603-724-1605, or the national problem gambling hotline, 1-800-GAMBLER. You can also text 800GAM or chat online at 1800gamblerchat.org.

The Bulletin’s Ethan DeWitt contributed to this report.

This story was originally published by Stateline, which like the New Hampshire Bulletin is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity.