States that legalized online sports betting saw bankruptcies and debt collections jump, study says

A US Supreme Court ruling in 2018 led to 38 states legalizing sports gambling. In its wake, researchers found a “substantial increase” in auto loan delinquencies, bankruptcies and debt collections in states that permitted online sports betting, according to the working paper that is yet to be peer reviewed. 

“While many states may have opted for legalization with the hope of increasing tax revenue, the negative effect we document can partially offset tax revenue benefits as more consumers’ financial health deteriorates,” the authors led by Brett Hollenbeck, associate professor at University of California Los Angeles Anderson School of Management, wrote. The results were based on data from more than four million people in a range spanning between March 2016 and June 2023. 

The Federal Reserve’s actions to tamp down inflation has kept interest rates broadly higher, providing less wiggle room for consumers in general. The Fed is likely to signal next week its plans to cut rates in September, according to economists surveyed by Bloomberg News, a move they say will kick off reductions each quarter through 2025.  

Sports gambling has quickly expanded from tribal and commercial casinos following the 2018 ruling that struck down a 1992 federal law, which banned state-authorized bets on sports with some exceptions. Since then, major sportsbooks have stepped in, drawing in more than hundred billion dollars in bets just last year, rising by more than a quarter from the year before.

The researchers studied the difference between online betting and gambling that takes place in person, and discovered similar but stronger consumer stress in states that allow online gambling, according to Hollenbeck. That trend showed up in average credit score, which fell slightly, but at a rate around three times higher in states that allowed online betting.

“We find fairly significant, fairly convincing evidence that when states legalize sports betting that people significantly increase problematic betting, and this is especially true when states legalize mobile betting,” Hollenbeck said.

Conversely, credit card delinquencies declined for sports betters, a trend that showed up a couple years after legalization and surprised Hollenbeck.

“There’s a pretty significant decrease in credit card limits, and it suggests that credit card companies are aware and preventing their consumers from placing bets,” he said.