Online sports betting adds to consumer credit stress, study says

Online sports betting adds to consumer credit stress, study says is profiled by BTW Media because published evidence links it to internet infrastructure, governance, operational dependencies, or market visibility.

• A recent study linked online sports betting to increased consumer credit stress, with higher auto loan delinquencies and bankruptcies.
• Credit card delinquencies fell as access to credit tightened for gamblers, suggesting preemptive action by credit companies.

OUR TAKE
Online sports betting has been linked to increased financial distress among consumers, according to a new study. This has manifested itself in higher rates of car loan defaults, bankruptcy and other financial problems. Despite the potential for increased tax revenues from legalised sports betting, the study suggests that the economic costs of deteriorating consumer financial health could negate these benefits. However, it also found a decline in credit card delinquencies among bettors, suggesting a more cautious approach by credit companies. This development points to the wider implications of digital betting for personal finance and the need for robust consumer protection mechanisms in the evolving digital finance landscape.
Heidi Luo, BTW reporter

What happened

Consumer financial distress surged after 38 states legalised online sports betting, according to a new study. After the US Supreme Court overturned a long-standing federal ban in 2018, researchers observed a “significant increase” in auto loan delinquencies, bankruptcy and debt collections in states that permitted online sports betting, according to Bloomberg.

The data, collected from over four million individuals between March 2016 and June 2023, suggests a clear correlation between access to online sports betting and worsening financial stability.

“While many states may have opted for legalisation in the hope of increasing tax revenues, the negative effect we document may partially offset the tax revenue benefits as more consumers’ financial health deteriorates,” write the authors, led by Brett Hollenbeck, associate professor at the University of California Los Angeles Anderson School of Management.

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Why it’s important

Following the Supreme Court’s 2018 decision to overturn a federal law banning state-authorised sports betting, the industry has grown rapidly, expanding from tribal and commercial casinos into the wider online gambling space.

Major sportsbooks have capitalised on this new market, with wagering volumes rising sharply. Last year alone, more than $100 billion was wagered, up 25% from the previous year.

At the same time, the Federal Reserve has maintained higher interest rates to control inflation, which has limited the financial flexibility of many consumers. However, relief is on the horizon: according to economists surveyed by Bloomberg News, the Fed is expected to announce a rate cut in September, with further cuts expected every quarter through 2025.

Interestingly, while other financial pressures have increased, credit card delinquencies among sports bettors have declined, a change that has occurred several years after the legalisation of sports betting.

Brett Hollenbeck, the lead researcher, noted a significant reduction in credit card limits. “It suggests that credit card companies are taking steps to discourage excessive gambling by reducing the credit available to place bets,” he said.