Credit problems jump after betting is legalized, Fed study finds
U.S. states that have legalized sports betting have seen a rise in delinquency rates on consumer credit products and a decrease in credit scores, according to a new report from the Federal Reserve Bank of New York.
Among people under 40 – the main demographic for sports betting – the share who were at least 90 days late on a credit card payment rose 7.9% after legalization, an analysis of consumer credit data found.
For people in that age group, auto loan delinquencies increased by 5.6%, according to the paper by Jacob Goss, a former research analyst at the New York Fed, and Daniel Mangrum, a research economist at the bank.
“Our findings suggest that sports betting can have dramatic implications for household financial stability,” the authors wrote this week.
The study offers the latest evidence of the financial fallout from the 2018 Supreme Court decision that allowed states to legalize sports betting. Since then, access to gambling has expanded dramatically and Americans have wagered over $520 billion on sports, researchers have estimated.
Over the past year, an even broader audience has gained access to sports betting through prediction market platforms like Kalshi and Polymarket, which offer yes-or-no event contracts on professional and college games even in states that have not legalized gambling.
Customers may be losing even more money on prediction market platforms, per dollar wagered, than they do on sports gambling apps, according to recent research from an analyst at Citizens.
The authors of the new study do not address the rise of prediction markets. Instead, they used the staggered roll out of state-sanctioned gambling over the past decade to compare how household finances looked before and after legalization.
Only a small percentage of people, some 3.1%, take up active sports betting after legalization, but for those who do, the effect is significant enough that it shows up in the overall credit statistics for the areas where they live.
Among everyone living in counties where betting is now legal – including the vast majority of people who do not gamble – the delinquency rates on all credit products rose by 0.3 percentage points, while the median credit score dropped by 1 point.
When looking only at people who take up sports betting after legalization, the authors provide a back-of-the-envelope estimate that delinquencies among the group rose by around 10 percentage points – with a 26 percentage point jump among those under the age of 40.
A paper published last year using data from the University of California Consumer Credit Panel found that legalizing online sports betting cut average credit scores in a state by about 2.7 points and increased the likelihood of bankruptcy by 10%.