The Costly Rise of Sports Betting

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Since 2018, sports betting in the US has become legal after the US Supreme Court overturned a federal ban. Sports betting in the US grew extremely quickly – by 2023, Americans placed over $120bln in bets, which generated close to $12bln of revenues (this revenue number is net of payouts) for sports betting companies. 

As with all forms of gambling, the concern with sports betting is how it impacts the financial well-being of people participating in it. Thus, economists asked the question – did the legalization of sports betting adversely impact people’s finances.

Gambling and Vices

Gambling can be viewed as a form of consumption entertainment given the fact that most participants lose money. In this sense, gambling losses are a cost paid to partake in the entertainment derived from gambling. Since sports betting is a form of gambling entertainment, it can be viewed as part of the spending a person allocates to gambling activities like playing the lottery or casino games. Thus, the legalization of sports betting could have no negative impact on a person’s finances if that person bets more on sports, but then spends less on lottery tickets or other forms of entertainment. 

If, however, individuals allocate other money – such as savings – to sports betting, then there may be a risk to their financial situation. Baker, Balthrop, Johnson, Kotter and Pisciotta (2024) (“BBJKP”) set out to determine exactly how the legalization of sports betting impacted finances.

Sports Betting – the Data

BBJKP looked at financial transaction data from 230,000 US households (from an original data set of 60mln households). BBJKP are able to see the income a household earns, as well as the spending on sports betting, along with how much money is being transferred to ‘classic’ investment brokerages (such as Vanguard, Fidelity, etc.), ‘gamified’ brokerages (such as Robinhood) and cryptocurrency platforms. 

Moreover, for some of the households, BBJKP are also able to see