“What Is The Stock Market?” Licensed Under CC BY-NC-ND 4.0
When the USA began legalizing sports betting in earnest on a state-by-state basis back in 2018, everyone knew there would be unintended consequences. And in the seven-plus years since, few ramifications have been as unintended, if not confusing, as the impact sports betting is apparently having on the stock market.
According to a paper by members of the University of Kansas, Northwestern University and Brigham Young University, data shows that “on average, households in states that legalized gambling saw the amount of money they invested in the market fall almost every quarter for the first three years after legalization.” This correlation does not necessarily prove causation. Not enough time has passed since the legalization of online betting in the US became standard fare. The industry itself is less than a decade old. It takes a longer stretch to declare wholesale trends as unassailable facts.
Still, these findings mirror other byproducts and concerns of legal sports betting. Multiple studies, for instance, show that states see a material increase in problem gambling cases after they legalize sports betting. This would seem adjacent to Americans investing less in the stock market over the same time period.
What’s more, if there is indeed a connection, it may only grow stronger given an even more recent development.
Why is Sports Betting Having an Impact on Stock Market Investing?
It’s all fine and good to acknowledge the findings from university scholars. But the results raise plenty of questions. Chief among them: How and why is the legalization of sports betting in the United States affecting how Americans use or don’t use the stock market?
The authors of the paper in question believe it has a lot, if not everything, to do with accessibility:
“Individuals in a majority of U.S. states now have a relatively new option should they want to tread in the footsteps of billionaires and make a consumption decision that feels kinda like an investment. They can bet on sports. One lesson of the meme-stock winter of 2021 was that get-rich-quick investing, even if it ends up losing money, can be a lot more fun than get-rich-slow investing that involves index funds and decades of doing nothing much at all. Compared to meme stocks and NFTs, sports betting doesn’t even look like a particularly bad investment — especially if the betting companies are throwing hundreds of dollars of incentives at you.
“Sports gambling makes more sense as a pure consumption expenditure than it does as an investment. Sports fans often report they’re more engaged with the activity on the field when they have real money on the line. Insofar as that consumption expense comes out of monies that would otherwise be invested in the stock market, however, the result is lower wealth and possibly less long-term financial stability.”
It is surreal to continue reading about “meme stocks,” but the whole GameStop short squeeze fundamentally changed how average-earning Americans feel about the stock market. So many already deemed it inaccessible. The idea of paying $100-plus for a single share isn’t going to resonate with someone making under $100,000 per year—which, by the way, is still well above the median U.S. salary.
This Topic is Going to Gain More Traction with the Rise of Prediction Markets
Regardless of where you land on this debate, it isn’t going anywhere. The rise of prediction markets in the United States is going to make sure of it.
For those who aren’t familiar, prediction markets fancy themselves a cross between bets and investments. Each transaction is considered an event-based contract. Because it’s a contract, companies who offer prediction markets are federally regulated rather than subject to state oversight. This effectively makes them even more accessible than sports betting, since they are permitted in every state.
Now, states and certain companies are trying to legislate against prediction markets. Opponents consider them constitutional circumvention, particularly as they pertain to sports betting.
Still, as of now, they aren’t going anywhere. And the nature of these contracts, which pay out based on “yes or no” events, guarantees they will appeal to more Americans than the stock market. You don’t need thousands of dollars to enter the prediction-market game, and the prospective payout comes faster than if you were to sit on a typical stock for years.
Are We Overstating the Impact of Sports Betting on the Stock Market?
Looking at all the evidence, it would be reasonable to wonder whether sports betting is impacting how Americans invest their money. At the same time, the current state of affairs may say more about the stock market itself.
As the wealth gap in the United States continues to grow, average-earning Americans are growing more and more frustrated by a system they believe is working against them or simply set up to make it impossible for them to capitalize on. This is a dynamic that could nudge them toward quicker avenues of potentially making money, such as sports betting or sports prediction markets. But does that, in turn, mean sports betting and prediction markets are responsible for the decline in stock-market investments among individuals?
Again, it’s impossible to say for sure. So many variables are at play. Rest assured, though, the sheer number of prospective money-making alternatives to stock-market investing are only growing. And with fewer people landing full-time jobs that offer 401Ks, it’s reasonable to assume the stock market will continue to experience ebbs and flows in volume among the everyday worker.
