Now, U.S. sports fans can bet on March Madness, the Super Bowl, or the Kentucky Derby without going to Las Vegas. You can bet from home, like with international sites such as 22Bet Kenya.
In 2018, the Supreme Court struck down the federal law banning sports gambling. Geoff Freeman, who was the CEO of the American Gaming Association, said this would raise state revenue and improve consumer safety.
The first point is undeniable. Sports gambling is now legal in many U.S. states. In 2023, it generated over $120 billion in total wagers. Operators made $11 billion in revenue, primarily from online betting. The second claim needs more attention. New research by Kellogg’s Scott Baker, an associate finance professor, will do that.
Baker teamed up with Justin Balthrop and Kevin Pisciotta from the University of Kansas. He also worked with Mark Johnson and Jason Kotter from Brigham Young. They studied how online sports gambling spread across states and its effect on household spending from 2018 to 2023.
They asked if consumers are spending more on online sports gambling. What are they spending less on?
The answer wasn’t immediately obvious. Sports betting, as it grows, may decrease interest in other activities – say concerts or dining out. Legalized sports betting might actually cause people to gamble less in other ways. This might even be good for their finances.
Research shows that consumers are putting hundreds of billions into online sports betting. Much of this money used to go toward safer, long-term investments, such as retirement accounts. This trend is particularly pronounced in financially constrained households.
Baker notes, “As people spend more on entertainment and gambling, their budgets take a hit in other areas.” “Net savings decline, and we see more indicators of financial fragility.”
Differences in spending behavior
Baker and his team examined the diffusion of legalized online gambling between 2018 and 2023. By the end of this period, 25 states, along with Washington, D.C., had enacted online sports betting laws.
The researchers pulled financial information from a database of transactions. This data is sourced from major banks, credit card companies, and FinTech firms. It spans more than 60 million Americans.
They looked at spending changes over time. This showed how legal sports gambling affected household budgets.
Following the money
Researchers noticed a big rise in sports betting in states where it was legalized.
By the end of the study, the researchers found that almost 8 percent of households gambled. These bettors spent, on average, $1,100 per year on online bets. People invested more in legal sports gambling, yet their net gains fell by almost 14 percent. For every $1 a household spent on betting, it put $2 less into investment accounts.
“If you like spending now instead of saving for later, you might face financial limits. You may also be more interested in gambling,” Baker says. “These are the people who are looking for the big win at the expense of savings.”
An open question for policymakers
There may be reasons to think that households irrationally gamble on sports. Many “true” odds for different sports bets are often unknown. This is different from the set odds in lotteries, slot machines, and card games. Many of the popular sports bets link different events for bigger payouts. Yet, they often come with higher loss ratios than straight bets on wins and losses. Baker says that more transparency in sports betting is key. Many people make exotic bets with poor odds. This change could help ensure they make informed choices.
These two directives, he notes, are “in direct tension with each other.” Policymakers need to know this: money spent on gambling comes from savings.
Baker states, “If we’re worried about impulsive actions, we should do all sports betting on-site.”
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