Gambling Away Stability: Sports Betting's Impact on Vulnerable Households
Abstract
We estimate the causal effect of online sports betting on households' investment, spending, and debt management decisions using household transaction data and a staggered difference-in-differences framework. Following legalization, sports betting spreads quickly, with both the number of participants and frequency of bets increasing over time. This increase does not displace other gambling or consumption but significantly reduces savings, as risky bets crowd out positive expected value investments. These effects concentrate among financially constrained households, 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.
This academic economics paper basically documents the commonsense perception of gambling being particularly harmful to the most vulnerable. [These results may pick up some but are not the same as the issue of addictive gambling which is not confined to online or sports gambling.]
Sports gambling took off after SCOTUS ruled in 2018 that the Federal Professional and Amateur Sports Protection Act, that had basically outlawed sports gambling, violated the Tenth Amendment’s prohibition on the federal government exercising powers reserved for the states. According to The Atlantic, “Within a year and a half, Goldman Sachs estimated, Americans were betting about $50 million a month. By late 2023, that figure exceeded $1 billion a month.”
Even though the Federal Government cannot tax [1] or prohibit it, there is as much reason for _states_ to heavily tax gambling as tobacco, marijuana, alcohol or other harmful forms of consumption. The best way is probably a state excise tax on the wager when and wherever placed – casino or online. Although it would not fix the problem of people traveling from taxed to untaxed jurisdictions and paying cash, the excise tax of any jurisdiction could be collected by the vendor just like online merchants collect sales tax according to the residence of the buyer/bettor. The rate should be greater than the revenue maximizing rate since the objective is to drive down total amounts wagered.
Image prompt: Distressed gambler looking at a tablet screen
Standard bleg: Although my style is know-it-all-ism, I do sometime entertain the thought that, here and there, I might be mistaken on some minor detail. I would welcome comments on these views.]
[1] My own amateur reading of the court ruling does not seem to rule out a federal _tax_ on gambling.
Taxing gambling to reduce total amount gambled implies that that there is some “better” level of gambling below the current level. How do you know what that level is? I’m curious about what your social optimization algorithm is.
In addition, does it matter what happens with the tax? Is there any assurance that the revenues get spent on something better than the gambling it displaces?