Sports Betting has Families Diverting Household Savings to Gambling (8:56)

The introduction of online sports gambling insteads leads to new overspending

Broadcast Retirement Network’s Jeffrey Snyder discusses the impact of sports gambling on household savings with Scott Baker of the Kellogg School of Management.

Jeffrey Snyder, Broadcast Retirement Network

This morning on BRN, sports betting has families diverting household savings to gambling. Joining me now to discuss this, Scott Baker is an associate professor of finance at the Kellogg School of Management. Scott, it’s so great to see you.

Thanks for joining us this morning. My pleasure. And we’re going to be talking about sports betting.

This is the second consecutive week we’re talking about this. From a different angle, Professor Baker, based on the study that you and your colleagues have done, it seems like many Americans are taking money, household money, and putting it towards betting when maybe it should go to other areas of their budget.

Scott Baker, Kellog School of Management

Yeah, so we found that this increase in sports betting after legalization was pretty sharp and that this has kind of redirected some dollars away from other elements of the budget. And I think there were some thoughts that maybe some of this, the dollars going to sports betting were just coming from other aspects of the entertainment, say, portion of the household budget, reducing going to movies or instead of going to a game, you might bet on a game instead. But what we found was actually that there were some components of the budget, like the entertainment spending, that actually increased alongside the dollars flowing out to sports gambling.

And so these two forces, the increase in spending on gambling and also the ancillary spending increase in spending on kind of food and restaurants and entertainment spending, cable spending, really put more pressure on some other aspects of households’ budgets. And one that we specifically looked at was kind of investment in more traditional equities. So if you’re thinking about kind of one allocation of risky investment in equities versus another in kind of sports gambling, it’s really drawing from some of the more long term, maybe retirement savings or other sorts of investments and putting that money into not only sports gambling, but also maybe going out to the bars to watch the games that you’re gambling on.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, I wonder, Professor, if I know there are disclosures and I think I think there are regulators working with the different private sector betting platforms to kind of educate people. But I wonder if there’s an educational element to this. We talk often on this network and elsewhere about financial literacy.

And I wonder if that dovetails into this conversation like, hey, that credit card debt or hey, you can go to the movies, but the movies are guaranteed, you’re winning on sports betting, maybe not.

Scott Baker, Kellog School of Management

Yeah, so I think there’s a couple of things in that. I mean, one is that we show some reallocation of household budgets in response to the legalization of sports betting. But it’s not to say that this should necessarily be banned or changed.

We’re trying to provide some information to policymakers and to households about what the downstream impacts are. But if households are going into their sports betting with kind of a fully rational view of their likelihood of winning and losing, and it’s just really fun for them, as it is for many people, maybe it’s OK that they’re reducing some of their other savings to pay for a new, very enjoyable activity that’s now legal. I think you kind of bring up a really good point that some of this is about education or literacy or just the transparency of some of the prices or likelihoods of winning.

So especially some of the more complicated bets and some of the bets that people really like to place are sorts of like parlay bets, where you’re betting on multiple things happening all at once and you can get a thousand to one payoff. But those are often the most kind of mispriced in the sense that they have the best margins for the betting sites. And so you might think that some households are making particular bets without a full understanding of the likelihood of kind of winning.

And so in that sense, maybe there does need to be a little bit of extra disclosure or kind of a better understanding. Maybe that just comes with a longer period of time of this being legal and kind of normalized, where people have a better understanding of their likelihoods of wins and losses.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, I mean, you know, I think a lot of it, a lot of all this, in my opinion, and I’m not a professor at all, you know, just anecdotally, I think the more you educate people, the better consumer they’re going to be. And look, it’s fun. You can follow you can I know I don’t bet per se.

I played slot machines. That’s pretty fun to be able to put. And I’ve lost every slot machine I’ve ever played.

I’ve lost. But that’s fun. And I can imagine following your favorite sports hero or basketball player, NFL player.

That is fun. It actually allows the person to be kind of participatory in the in the gaming process and active participant, I guess.

Scott Baker, Kellog School of Management

Absolutely. And I mean, my co-authors and I are kind of interested in sports betting and engage in some sports betting ourselves. So it’s not to say that that is it’s a moral failing or anything like that.

But we kind of that’s part of the reason we did this study is to kind of better understand, you know, just what happens after sports gambling is is legal. So there’s definitely an entertainment component that is is obviously very enjoyable and very valuable to a lot of people. We probably just wanted to provide some information for, you know, policymakers to say, look, you know, there are a lot of states and the federal government who try to, you know, through the tax code or just through public service announcements or through education, try to get people to save more for for kind of their longer term future, save more, participate more in stock markets.

And this kind of legalization is maybe counteracting some of those messages to some extent. It might still be worth it to have this legal. But, you know, there is this this tension between those things.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, absolutely. And what’s the follow up to this, Professor? What’s the next step in the research?

Is it just as as it expands, more years get tacked on in terms of history, you have more data and therefore you can see the overall impact? Or are there other questions that you and your colleagues want to answer?

Scott Baker, Kellog School of Management

Yeah, so I think there’s a few directions to move in. One is that, you know, there are a couple other teams who have been putting out some research very recently as well as this is a kind of fast moving phenomenon about some of the other impacts. So there were some other researchers who had data from credit registries where they could observe things like credit scores and bankruptcies and debt delinquencies.

And they also saw some negative effects there. So kind of across a different element of the household budget or the household financial picture, there’s some other work being done. We’re looking, as you said, at kind of extending our sample window.

So, you know, as more states legalize in different ways, as we have more of a post period of legalization, we can get some better understanding of whether some of these effects are short term or long term. We saw kind of continued growth over time in the amount of sports betting going on within individual and within states. So this was still growing, but we haven’t found the peak or really plateau yet.

And the other place that we’re trying to dig a little bit more into are some of the individual level results. So, you know, who are the individuals or who are the households who seem kind of most susceptible to this? We can match in maybe some data on local advertising and things like that to kind of better understand not only the aggregate effects of this, but some of the kind of household specific effects as well.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, it’s certainly going to be, you know, you’re going to grow your data set and obviously have more data. And look, I guess I’ll take it that we make it as a network. And people start betting what the topic of the show is going to be.

And so then I’ll say, boom, I’ve made it. Maybe I can get a endorsement from DraftKings. Who knows?

Professor Baker, I’m just kidding, folks. Professor Baker, we’re going to have to leave it there. Great to see you.

Thanks so much for joining us. Great research. And we look forward to having you back on the program again very soon.

Absolutely. Had a good time. And don’t forget to subscribe to our daily newsletter, The Morning Pulse, for all the news in one place.

Details at our website. Until tomorrow, I’m Jeff Snyder. Stay safe.

Keep on saving. Don’t forget, roll with the changes.