Sports betting linked to rising bankruptcies and lower credit scores
Sports betting is typically an innocent pastime, but its high availability can negatively impact users' financial situations. Bookmakers' customers have lower creditworthiness and are more prone to personal bankruptcy.
In the USA, in states that have legalized sports betting, individual credit scores have decreased by an average of 0.3%. However, where such betting can be done online, the average credit score has fallen by about 1%.
Although this change seems insignificant at first glance, it's important to remember that it affects the entire population. This means that the credit scores of a relatively small group of people have worsened significantly more to move the average. This group most often includes young men with low-income levels.
These are the conclusions of new research by Brett Hollenbeck, Poet Larsen, and Davide Proserpio, researchers from the California business schools UCLA Anderson School of Management and USC Marshall School of Business.
Do bookmakers attract financially careless clients?
It has long been known that participating in gambling, including sports betting, can lead to deterioration in financial situations and even the health of the participants. Therefore, the market for such games is tightly regulated and licensed almost everywhere in the world. However, scientists often have difficulty establishing a cause-and-effect relationship. It's challenging to definitively exclude that participating in such games and the negative consequences share a common cause. For example, it is easy to imagine that people with a greater tendency to incur debt are more eager to participate in betting.
Hollenbeck and his collaborators were able to circumvent this problem thanks to a "natural experiment" conducted in the USA. In 2018, the US Supreme Court ruled that the 1992 law outlawed sports betting in most states was unconstitutional. Within a few years of that ruling, 38 states allowed sports betting in some form, seeing it as a good source of tax revenue. The pastime proved very popular, with Americans betting nearly $400 billion with bookmakers over five years. The staggered legalization in different states allowed scientists to definitively link this to changes in the financial condition of residents.
The results of this research confirm that sports betting negatively impacts participants' financial situations, especially when the service is easily accessible, such as via mobile apps. According to California researchers, in states where online betting was legalized, the number of personal bankruptcies announced increased by 28% over three to four years due to this reason. The value of debts taken over by collectors increased by 8%. The use of consolidation loans also significantly increased.
Banks are cautious with customers who bet on sports
Scientists also noted that in states where online sports betting was legalized, the percentage of overdue credit card debt decreased. This is probably due to the caution of financial institutions, which responded to some customers' worsening credit scores by reducing their available credit card limits.
While many consumers derive great enjoyment from legal betting and state governments benefit from additional budget revenues, there are concerns that the introduction of easily accessible sports betting harms consumers' financial health. The authors conclude that our research shows that these concerns are justified.
