Declining Credit Scores, More Bankruptcies in Sports Betting States, Says UCLA, USC
A recent study by the University of California Los Angeles (UCLA) and the University of Southern California (USC) found that consumers in jurisdictions where sports wagering is legal are filing for bankruptcy more frequently and having their credit scores reduced.
In jurisdictions where sports betting is legal, consumer credit scores haven't declined much thus far. According to USC and UCLA, there is an average 0.3% decline in credit scores when a state legalizes sports betting. Currently, sports betting is legal in 38 states as well as Washington, DC.
"The decline in credit score is associated with changes in indicators of excessive debt. We find a substantial increase in bankruptcy rates, debt collections, debt consolidation loans, and auto loan delinquencies. We also find that financial institutions respond to the reduced creditworthiness of consumers by restricting access to credit,” according to the study.
The universities looked at credit trends among consumers in the states during the first month following the legalization of sports betting, whether it be retail or online. From there, the researchers made a distinction between bets made through computers and mobile apps and those made at physical sportsbooks.
Worsening Trends in Online Sports Betting
The research team from UCLA and USC found that states that permit online sports betting had a faster acceleration of consumer credit weakness and loan delinquencies.
“In states that allow online/mobile gambling, the decrease is roughly three times larger, suggesting that legal sports gambling does worsen consumer financial health, especially so when mobile access is allowed,” noted the study. “we focus on states with online access to gambling, we also find a roughly 28% increase in bankruptcy likelihood and an 8% increase in debt collection amounts, both statistically significant. These effects generally appear roughly two years after when gambling became legal.”
Credit card delinquencies declined in states that allowed mobile sports gambling, according to the paper. However, the researchers also noted that these states tightened credit availability for consumers and saw an increase in the proportion of secured to unsecured loans. According to recent research, sports gamblers have cut back on their gambling in response to economic challenges.
That matters to operators because there is mounting evidence that the US economy is contracting, including increased unemployment. The New York Federal Reserve reports that nearly 20% of customers have their credit cards maxed out, while the Philadelphia Federal Reserve reported last week that the number of credit card accounts past due in the first quarter hit the highest levels since the survey's inception twelve years ago.
Additional Credit Concerns Originating in Sports Gambling
The UCLA/USC study also found that young people and those in lower income categories are the groups most susceptible to financial hardship as a result of sports betting. The researchers also found a concerning pattern in the long-term rise in consumer bankruptcy filings in states that permit online sports betting.
“Three to four years after the legalization of online sports gambling, we observe that the likelihood of bankruptcy filing increases by as much as 25-30% when compared to pre-treatment levels,” observed the research team.
One can argue against the correlation between sports betting and financial hardship. According to WalletHub's most recent survey on state-level consumer financial distress, Texas and Georgia are two of the ten most affected states because they forbid sports betting in any manner. However, eight states offer mobile betting, and all ten of the states with the least bankrupt consumers allow sports wagering.