Today, it is hard to overlook the popularity of sports betting. Its reach goes beyond its domination of television advertising—online sportsbooks have also scrambled to strike formal partnerships with professional teams, retired athletes, and even news outlets. Sports betting is especially popular with young adults. A recent survey found that 58 percent of college student respondents have engaged in sports betting at least once, with 16 percent reporting at least one “risky behavior.”

This widespread popularity, however, is a new phenomenon. In the years between the passage of the Professional and Amateur Sports Protection Act of 1992 (PASPA), which barred states from sanctioning sports gambling, and the U.S. Supreme Court’s 2018 decision in Murphy v. NCAA, which declared the PASPA unconstitutional, legal sports betting was largely absent from American life. Even before the passage of PASPA, sports gambling was legal in only a few jurisdictions.

Sports betting has reemerged in very different time than when it was first entombed. In October 1992, the first text message had not yet been sent. In contrast, by 2024, one survey estimated that 19 percent of American adults have created an account with an online sports betting service.

Two recent working papers, both released in July 2024, analyzed the impact of legalized sports gambling on consumer financial health. Although the two research teams took different approaches, the results are directionally similar, and both papers argue that the breaking of legal barriers around sports gambling has harmed financial health of American consumers – especially so in the case of online sports betting and particularly among low-income and low-savings consumers.

The first paper was written by Brett Hollenbeck, an associate professor at the UCLA Anderson School of Management, Poet Larsen, a Ph.D. candidate at the University of Southern California Marshall School of Business, and Davide Proserpio, an associate professor at the University of Southern California Marshall School of Business.

The Hollenbeck team examined the state-by-state impact of legalized sports gambling and online sports gambling on overall consumer financial health, across metrics including credit scores, bankruptcy rates, credit card delinquency rates, and access to credit. The researchers used data from the University of California Consumer Credit Panel, which for two decades has tracked the financial records of millions of adults across the United States. Different states legalized gambling in different forms at different times. Some states never legalized sports betting at all. This staggered rollout enabled the Hollenbeck team to compare the financial health of consumers in states with legalized sports gambling to the health of consumers in states that did not, and also allowed the team to measure the specific impact of online sports betting. Importantly, the Hollenbeck team assessed the impact of legalization on all adults in its sample, not just gamblers.

The second paper was written by Scott R. Baker, an associate professor at the Northwestern University Kellogg School of Management, and several coauthors.

The Baker team took a more granular approach and examined the direct impact of online sports betting on savings, investment, and other financial activities within households. The team used a dataset that aggregated millions of individual-level financial transactions across a sample of over 200,000 American users. The dataset included bank and credit card records, which enabled the team to observe deposits to and withdrawals from online sports betting platforms, and indirectly assess the relationship between betting activity and other financial activities.

The two teams reached similar results. In the four-year window following legalization of online sports betting in a given state, the Hollenbeck team estimated that the average credit score within that state declined by nearly 1 percent. In states without online sports betting, bankruptcy filings increased modestly, but in states with online sports betting, filings surged by over 25 percent across the same period. After drilling into demographic data, the Hollenbeck team concluded that young men in low-income counties experienced significantly more financial trouble than other groups, especially so in states with online sports betting.

The Baker team found that each dollar spent betting on sports online corresponded with a $2 decrease in stock investment activity. This trend persisted across traditional brokerage platforms as well as trading platforms associated with the “meme stock” craze. Cryptocurrency investment also suffered, although to a lesser extent than stock investment. Like the Hollenbeck team, the Baker team found that online sports betting legalization led to increases in credit card balances and overdraft rates among low-savings households, as well as lower credit card limits for these households. Consumption habits also shifted: Gambling households increased spending on sports-adjacent leisure activities, including cable television, entertainment, and dining.

Both research teams conclude with a warning. The Hollenbeck team notes that many states legalized with increased tax revenue in mind, but the crumbling of consumer financial health could contribute to lower state tax revenues. The Baker team implores policymakers to strike a balance between the tax benefits of sports gambling and the protection of at-risk consumers. Potential regulatory measures suggested by the Baker team include advertisement regulation, support for safer investments, and “targeted interventions.”