Online Sports Betting: A Growing Concern for Consumer Protection

In 30 states, as well as Washington D.C. and Puerto Rico, everyone over the age of 21 now has access to mobile sports betting platforms, effectively allowing them to carry a mini sports casino in their pockets. This rapid expansion of legalized mobile sports gambling has raised significant concerns about the potential consequences of this largely unregulated trend.

Both of us have previously highlighted the alarming growth in total sports wagers, which have exceeded $100 billion annually, and the corresponding increase in addiction hotline calls in states where mobile sports gambling is legal. Historically, forms of legal gambling, especially state lotteries, have disproportionately affected poorer Americans financially. Although the additional tax revenue from legalized gambling may seem attractive, the social and economic costs associated with gambling addiction warrant serious consideration. Until recently, however, we lacked the concrete data needed to confirm that mobile sports gambling directly leads to financial distress in the states that embrace it.

Recent research has begun to fill this critical gap. In the past month, two separate research teams have released studies that provide compelling evidence that legalized mobile sports gambling negatively impacts bettors' financial health. While the majority of gamblers engage in responsible betting, a concerning minority do not. Analysis of large datasets reveals that legalized sports gambling correlates with declining credit scores, rising debt levels, and diminished investment activities, particularly among low-income men. This evidence underscores the need for legislators in states with legalized sports betting—and those contemplating legalization—to thoroughly evaluate whether the financial and social costs associated with this gambling boom truly justify the tax revenue it generates.

One of the key studies, titled “The Financial Consequences of Legalized Sports Gambling,” was conducted by researchers Brett Hollenbeck, Poet Larsen, and Davide Proserpio. Utilizing the staggered rollout of legal sports gambling, the authors analyzed a consumer credit dataset encompassing 7 million individuals to assess how online betting impacts consumers’ financial health. In an interview, Hollenbeck expressed heightened concern about the implications of legal sports gambling, particularly given the significant small-scale effects observed across legalized states. These findings suggest that a considerable number of individuals are seriously affected by these changes.

The study presents several alarming trends. In states where any form of gambling is legal, average credit scores experience a noticeable decline of 0.3% over four years. In states with online betting specifically, this drop escalates to 1%. Moreover, the likelihood of filing for bankruptcy in states with online betting increases by 25-30% within three to four years of legalization. Collections on unpaid debts also rise by approximately 8% in these states. The research indicates that young men in low-income areas face greater financial distress, as evidenced by higher rates of bankruptcy, increased reliance on consolidation and unsecured loans, and more frequent credit card delinquencies.

These findings clearly illustrate the broader implications of legalized online gambling. In states where such gambling is permitted, overall debt levels rise, leading to increased bankruptcy filings, lower credit scores, and a higher incidence of credit card delinquency. Alarmingly, it is often the most vulnerable populations—particularly low-income individuals—who suffer the most significant adverse effects.

The second study, titled “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households,” adds another layer of insight to this issue. Authored by Scott Baker, Justin Balthrop, Mark Johnson, Jason Kotter, and Kevin Pisciotta, this study analyzed consumer transaction data from over 230,000 households, focusing on indicators of financial stability, such as credit card balances, credit card debt, and instances of bank overdrafts. The authors concluded that the legalization of sports betting leads to substantial increases in gambling activity, without a corresponding decrease in other forms of gambling or consumer spending. In other words, gamblers are not merely replacing poker nights with sports betting; rather, they are increasing their overall betting activity. Notably, the study found that increased sports betting replaces investments in the stock market, with the researchers estimating that each dollar spent on betting results in a two-dollar decrease in net investment.

Similar to the first study, Baker and his team identified that low-income gamblers disproportionately experience negative financial effects. Households with lower savings balances tend to spend 32% more on gambling as a percentage of their income compared to households with higher savings. Additionally, households that have a history of bank overdrafts tend to spend twice as much on gambling relative to their income compared to those without such a history. This trend leads to higher credit card balances and decreased available credit, compounding the financial challenges faced by these households.

In response to these rising concerns, major sports gambling websites have formed an organization dedicated to promoting “responsible betting.” While this initiative represents a step in the right direction, it does not adequately address the fundamental issues inherent in their business model, which relies on extracting losses from high-risk bettors—akin to the operations of traditional casinos. As noted by Nate Silver, a prominent elections analyst and gambler, these companies are employing sophisticated techniques to maximize user spending, particularly targeting vulnerable segments of the market.

Looking to the future, the mobile gambling industry is primarily focused on expansion. Currently, there are still 20 states without legalized mobile sports betting, and tapping into these markets is crucial for the industry’s growth. As a result, gambling companies have invested heavily in lobbying state lawmakers and supporting ballot initiatives. However, this push for legalization has not been without challenges. For instance, California voters recently rejected the most expensive ballot campaign in history aimed at legalizing sports betting in 2022. Additionally, opposition from Native American casino groups suggests that California, being the most populous state, may not permit mobile sports gambling in the near future. Similarly, efforts to legalize sports betting in Texas face significant hurdles, as such a move would require a supermajority in both legislative chambers, followed by voter approval, a complex process that may not come to fruition until 2025.

The industry's persistent lobbying efforts highlight a broader goal: to provide comprehensive access to all forms of gambling, including internet gambling, or “iGaming.” Currently legal in seven states, iGaming encompasses a range of casino games and has been operational in states like New Jersey and Delaware since 2013. Industry executives view the legalization of iGaming as the “holy grail” of gambling expansion and are eager to capitalize on its potential revenue. As discussions around iGaming progress, it is essential to recognize the potential risks associated with it. Although research on its financial harms is still limited, jurisdictions where iGaming is legal have reported substantial increases in calls to gambling addiction hotlines, with figures rising by 100 to 300 percent following legalization. If trends from the recent studies hold true, it is reasonable to infer that mobile casino gambling could similarly lead to declines in credit scores and diminished investment activity.

Addressing the concerns surrounding mobile sports betting is no small task. It is crucial to acknowledge that online gambling will persist regardless of a state’s legal stance, and states are understandably reluctant to forgo potential tax revenue. Nevertheless, the evidence clearly indicates that legalizing mobile sports gambling significantly exacerbates harmful betting behavior. Consequently, it is imperative for policymakers to implement sensible regulations to mitigate these effects.

One proposed solution is to limit gambling to physical locations, such as bars or casinos. This approach would decrease accessibility and reduce the overall cultural prominence of sports gambling. However, a more feasible step would be for states with legalized mobile sports gambling to hold legislative hearings. Researchers like Hollenbeck and Baker should present their findings, compelling gambling executives to confront the negative consequences of their offerings. Additionally, access to customer data from platforms like FanDuel and DraftKings would enable researchers to better understand betting habits, thus informing effective policies designed to protect vulnerable gamblers.

There is also room for federal action to shape gambling policy. The Supreme Court ruling in Murphy v. NCAA (2018) invalidated the Professional and Amateur Sports Protection Act (PAPSA) of 1992, which had previously prohibited states from legalizing sports betting. Given this context, legislators like Rep. Paul Tonko have introduced the SAFE Bet Act, which includes various consumer protection measures aimed at promoting responsible gambling. These proposals involve banning gambling advertisements during sports broadcasts, limiting deposits from customers, prohibiting AI-driven personalized promotions, and authorizing research into gambling addiction. Tonko emphasizes that the objective is not to eliminate gambling altogether but rather to foster responsible practices that minimize the risk of addiction.

Implementing such measures would establish critical guardrails to prevent hazardous gambling behavior while allowing state legislatures to craft tailored policies that reflect the unique needs of their communities. Further federal actions could involve imposing levies on multi-leg bets to deter enticing offers, restricting “free money” promotions for at-risk gamblers, and requiring transparency from gambling companies regarding player losses.

While these policy recommendations are preliminary, they underscore the pressing need for political leaders to recognize and address the harm caused by online sports gambling. With clear data indicating the negative impacts on consumers’ financial well-being, it is crucial for policymakers to take meaningful action to protect individuals and families from the repercussions of this rapidly growing industry.