Sports betting is causing some low-income Americans' finances to go from bad to worse

• Two new studies found that sports betting has taken a toll on some Americans' finances.
• Sports betting was tied to lower credit scores and less investing in assets like stocks.
• Low-income Americans and young men were the most likely to see their finances negatively impacted.

Football season is right around the corner — when millions of Americans will bet on everything from who will win the Super Bowl in February to how many passing touchdowns Denver Broncos quarterback Bo Nix will throw during his rookie season.

For the majority of gamblers in the 38 states plus DC, where sports betting is legal through a combination of retail and online sportsbooks, their wagers are likely to have a modest impact on their finances — most people don't get rich betting on sports. Meanwhile, many bettors will chalk up their gambling losses as worthwhile entertainment expenses.

However, some gamblers could end up regretting more than their losing bets. That's because there's growing evidence that sports gambling is taking a toll on some Americans' finances.

A working paper published in August by University of Southern California and University of California Los Angeles researchers found that sports gambling is "harming consumer financial health." In the 30 states with just legal online sports gambling, the average credit score declined by about 1% roughly four years after legalization, and bankruptcy likelihood increased by 28% after about two years. The analysis was based on financial information of roughly 7 million US adults, which was provided by the University of California Consumer Credit Panel.

"We find broad evidence that legal sports betting, and in particular mobile/online access to betting, has led to significant increases in problematic debt activity and a worsening of consumer financial health," Brett Hollenbeck, one of the paper's authors, wrote on X.

Another working paper, published in July by Northwestern University, the University of Kansas, and Brigham Young University researchers, found that for every $1 a person bet on sports, it reduced their net investment in financial instruments like stocks by roughly $2 on average. Net investments in a state typically fell about 14% in the two to three years after sports betting was legalized, and among some households, sports betting was associated with rising credit card balances and overdraft payments. The analysis was based on a dataset of billions of US consumer transactions between 2010 and 2023, which was provided by a data aggregation and analytics platform.

"Our results show that not only does sports betting lead to increased betting activity, but it also leads to higher credit card balances, less available credit, a reduction in net investments, and an increase in lottery play," the researchers wrote.

In recent years, the widespread legalization of sports betting has convinced many Americans to get in on the action. The total amount wagered on sports in the US rose to $14 billion in January 2024 from about $1 billion in January 2019, and a Seton Hall University poll of 1,523 US adults conducted in February found that 37% of Americans had bet on a sporting event, up from 34% in 2023 and 28% in 2022.

While the industry has boosted states' tax revenues, created jobs, made some people a lot of money, and entertained millions, some experts have raised concerns about the financial impact sports betting losses could have on some Americans — and questioned whether the benefits of the industry outweigh the potential costs.

Sports betting can lead to addiction and harm low-income Americans

When sports betting becomes a problem for one's finances, gambling addiction tends to be one of the main culprits. A Siena College poll of over 3,000 Americans conducted in January found that 15% of respondents knew someone who has or had a problem with online sports betting. Among those who had placed bets with an online sportsbook, 18% said they'd had trouble meeting a "financial obligation" due to a gambling loss.

"We believe, nationwide, the rate and severity of gambling problems have increased across the United States since 2018," Keith Whyte, executive director of the National Council on Problem Gambling, told CNBC in April. In 2018, the Supreme Court lifted the federal ban on sports betting, clearing the way for its legalization across the country.

Online sportsbooks such as FanDuel and DraftKings provide bettors with responsible gaming resources and tools, including information on where they can seek help in their state. Many platforms also allow bettors to place restrictions on their deposits, wages, and time spent on the platform.

However, some experts believe significant risks remain.

"Here's a product that we know is addictive," Timothy Fong, co-director of the UCLA Gambling Studies Program, previously told Business Insider regarding sports betting. "Here's an American appetite for that product. And then you combine the forces of a very powerful and effective industry combined with technology. This is where potentially it could go really bad."

When sports betting leads to financial challenges, it tends to be low-income Americans who are the most impacted.

The USC and UCLA analysis found that young men, particularly those based in low-income counties, were the most likely to see their financial health deteriorate due to online sports betting. Additionally, the Northwestern, Kansas, and BYU researchers found that "financially constrained households" with less savings were more likely to "divert funds from their investment portfolios to betting activity."

Gambling has long had a disproportionately negative impact on the finances of lower-income Americans. An analysis from The Economist published in April found that in the poorest 1% of US zip codes, the average adult spends nearly 5% of their annual income on lottery tickets — or around $600 a year. The richest 1% of zip codes spent 0.15% of their incomes on average, or $150 a year.

The impact of gambling on people's finances isn't the only reason the sports betting boom has received mixed feedback in recent years.

For example, some sportsbooks haven't paid out winning customers because of errors in their betting odds, which they said gave bettors an unintended advantage. Others have placed significant limits on how much money some of their most successful bettors can wager. While these developments have frustrated some gamblers, these sportsbooks generally haven't violated any laws or regulations.

Additionally, while sports betting has generated millions of dollars in tax revenues, the proceeds have fallen short of expectations in some states — and not everyone thinks the tax dollars have been wisely spent. In Arkansas, roughly 18% of tax proceeds go to "horse breeding awards and racing purses," according to a Bloomberg analysis. Between the second quarter of 2023 and the first quarter of this year, less than 2% of US sports betting tax dollars went to problem gambling programs.

In the years ahead, the sports betting industry could see some changes, including higher taxes and increased regulation of its marketing practices to minimize the risk of problem gambling. The former could boost states' tax coffers but potentially lead to fewer promotions and less favorable odds for bettors, sportsbooks say.

For industry executives, arguably the biggest change would come if California and Texas — the two most populous states in the nation — legalized sports betting. Despite these states' political differences, a variety of factors have prevented many of their lawmakers and citizens from getting on board, and it remains unclear when — or if — legalization will happen.

Regardless of how it plays out, the US sports betting boom — and efforts to evaluate its impact on society — appear to be in the early innings.

If you or someone you know has a gambling addiction, call the National Council on Problem Gambling Helpline (1-800-522-4700), which provides resources and referrals for all 50 states, Canada, and the US Virgin Islands. Help is available 24/7 and is 100% confidential.

Are you a sports bettor willing to share your story? If so, reach out to this reporter at jzinkula@businessinsider.com.