A new study reveals that a growing number of gamblers are abandoning traditional stock market investments in favor of sports betting, a trend that underscores the evolving landscape of speculative investments. The study suggests that for every dollar spent on sports gambling, net investments in stocks and other financial products decreased by just over $2.
The working paper titled Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households found that the rise of sports betting platforms and the increasing accessibility of sports wagering is luring individuals away from equity markets, with potentially significant implications for both industries.
“We estimate the causal effect of online sports betting on households’ investment, spending, and debt management decisions. Employing household-level transaction data and a staggered difference-in-differences framework, we find sharp increases in sports betting following legalization,” reads part of the report. “This increase does not displace other gambling activity or consumption but significantly reduces households’ savings allocations, as negative expected value risky bets crowd out positive expected value investments.”
“These effects are concentrated among financially constrained households, who become even more strained as credit card debt increases, available credit decreases, and overdraft frequency rises. Our findings highlight the potential adverse effects of online sports betting on vulnerable households,” the report added.
The effect is strongest among households that are already struggling financially. These are likely the same households that are drawn to get-rich-quick schemes in the financial markets, like meme stocks and risky options.
The report found that retail investors, particularly those with a propensity for risk-taking, are reallocating their capital from traditional financial markets to sports wagering, highlighting a trend that could have broader implications for both sectors.
The research revealed that as sports betting increases, spending in related entertainment categories also rises, likely due to spillover effects. This combined surge in betting and consumption contributes to greater financial instability, evidenced by reduced credit availability, higher credit card debt, and a rise in overdrawing bank accounts.
Overall, the findings suggest that access to online sports betting not only reduces engagement with the equity markets but also worsens the financial challenges faced by already strained households. While sports betting significantly impacts equity investments, it does not lead to a reduction in participation in lotteries or other online gambling platforms, such as poker sites.
Cryptocurrency exchanges experience a slight decline in deposits, but this decrease is far less significant compared to the increase in sports betting or the drop in equity investments. Overall, the findings suggest that the rise in sports betting primarily displaces positive expected value investments, rather than other forms of negative expected value gambling.
Sports betting impacts not only speculative trading but also investment driven by savings goals. Unlike previous studies that show an equal drop in both buying and selling, the findings indicate that the decline in stock market participation is due to shifts in both attention and capital. Additionally, the effects are most pronounced among financially constrained households, who stand to benefit the most from maintaining their savings.
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