Study Finds That Legalized Sports Betting Is Leading to More Bankruptcies, Lower Credit Scores

A new study highlights some of the downsides of legalizing sports betting

Photo by ben frost on Unsplash

In 2018, the U.S. Supreme Court overturned the Professional and Amateur Sports Protection Act, setting into place an environment that allowed for the widespread legalization of sports betting.

From 2018 to the present, 38 states legalized sports gambling — allowing for the rise of betting platforms that allow people to legally participate from the comfort of their homes with the use of online platforms. No longer would casinos or state lotteries be the main forms of legal gambling.

And Americans have been participating in sports betting in growing numbers. The American Gaming Association (AGA), a trade group which represents the industry, estimated that tens of millions of Americans placed bets on this year’s Super Bowl, a trend accelerated by the rapid legalization of sports betting.

The industry argues that sports betting is benefitting the economy both through increasing U.S. gross domestic product and through billions of dollars of new revenue being generated at the local, state, and federal level. Lawmakers across the country seem to agree — the only holdouts where sports betting remains mostly outlawed are a few states in the Deep South, out West, and in the Midwest.

But a new study authored by a trio of California-based researchers suggests that there are previously unknown downsides to states legalizing sports betting.

“We were seeing all these articles coming out that were saying there seems to be problems, so we wanted to causally identify the effect,” Poet Larsen, a PhD candidate in marketing at the University of Southern California and one of the researchers who conducted the study, said in an interview.

Using data they gathered that includes financial information drawn from a nationwide credit bureau, they were able to see how consumer health — measured by things like credit scores, bankruptcies, auto loan delinquencies— changed after a state legalized sports betting.

What they found was that when a state legalizes sports gambling, you can see a “small but significant decrease in the average credit score,” to quote from the study — but online and mobile gambling has a much bigger impact. Once states allow these forms of gambling, the “decrease is roughly three times larger.”

They also found an increase in auto loan delinquencies once sports gambling is legalized. For states with online access to gambling, they found a 28% increase in the likelihood of bankruptcy and an 8% increase in debt collection amounts. They also found a reduction in access to credit — shown through lower credit limits and a higher ratio of secured to unsecured loans.

It’s important to note that these impacts are being felt among the states as a whole — not just those who are engaged in legal sports gambling.

“We don't directly observe gambling activities in our data, so the fact that we pick up on effects with a population sample suggests the effect is quite strong,” Larsen said.

The AGA did not respond to a request for comment on the study.

Les Bernal, the National Director of Stop Predatory Gambling — a group which advocates against the expansion of legalized gambling — said that what differentiates legalized sports betting from other forms of legalized gambling is who’s participating.

“I live in the poorest community in Massachusetts, they sell $50 lottery, and no one says a damn thing about it except for us. Other states, $100 scratch off tickets. You’ve got casinos in poor communities across the country, and so on,” he noted.

But legalized sports betting is different.

“Middle class families and upper class families now have young men particularly in their families who are getting crushed by this,” he said. “This is elevating predatory gambling in a way that wouldn’t have happened on its own.”

He pointed to a recent Reuters report showing that some British-owned sports betting companies have implemented protections for younger adults overseas but haven’t introduced the same curbs here in the U.S. — exposing Americans to higher risks.

Stopping the spread of legalized sports betting has been one of the priorities of Bernal’s organization.

One of the few states that has yet to legalize it is Minnesota. The state’s governor supported a bill that would’ve legalized the practice this year, but Bernal’s coalition helped defeat it.

“What’s cool about this issue is we pull from the right and the left,” he noted, saying that they were able to assemble a coalition of conservatives and progressives to block the legislation.

The governor they defeated on the issue is named Tim Walz, who was named the Democratic vice presidential nominee this month.