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Economic and sociological research can be quite difficult. On top of the challenges associated with gathering accurate and comprehensive data, the task of analyzing the available data in a correct manner is a tall one.
Professors at the University of California Los Angeles and the University of Southern California are currently braving those challenges to produce useful insights about the impact of the expansion of regulated gambling on consumer credit in the United States. The need for such scholarship is serious.
The working paper they have published points to a potential issue for people in the gambling industry to consider. While it’s great that this is a working paper, it needs more work.
Authors’ current claims in the latest paper version
Brett Hollenbeck, Poet Larsen, and Davide Proserpio last updated their paper, “The Financial Consequences of Legalized Sports Gambling,” on Aug. 2. In the paper’s current abstract, the authors say their findings show that “consumers’ financial health is modestly deteriorating as the average credit score in states that legalize sports gambling decreases by roughly 0.3%.”
The authors credit the University of California Consumer Credit Panel as the source of their data. That panel “contains anonymized individual-level records of a nationally representative 2% sample of U.S. adults with a credit report.”
According to the paper, the final dataset, after eliminating records deemed to skew the data, represents almost 4.4 million individuals and 90 million quarterly observations from March 2016 to June 2023.
The information the authors compared that data to includes the first months various US states began collecting new tax revenues from regulated sports wagering. As it stands, that’s where the adjustments in this paper need to begin.
Assumptions, inaccuracies weigh paper down
Problems with the authors’ work begin with the treatment dates, which the authors claim are “the first month the state began collecting tax revenue.” However, there are several inaccuracies in the dataset.
Contrary to what the paper shows, Mississippi and Montana have collected tax revenue from limited online sports wagering since November 2021 and May 2020 respectively. Revenues from those sources have been meager because of the geofencing limitations on that gambling in those states.
North Carolina began collecting tax revenue from statewide online betting in March, not in-person wagering as the paper claims. While pointing these errors out might seem like nitpicking, they can influence the analysis of the data.
That leads to a bigger criticism of the analysis. The authors made some effort to address the parallel trends assumption issue by looking at data from the same states before and during the study period and by incorporating other financial effects like unemployment insurance and COVID-19 pandemic stimulus payments.
However, there are numerous other financial effects they provide no control for, like general inflation, rise in costs of goods independent of inflation, job gain/loss, fluctuations in income and housing costs, etc. All of those impact a person’s access to credit and may be connected to a person’s gambling behavior or lack thereof, but the data here do not support even that conclusion.
Hopefully, the authors can adjust their data and improve their analysis as they continue to work on this matter. If their claims are legitimate, it’s a matter that all parties involved in the industry should take note of.
Why this research matters
If the expansion of regulated gambling is indeed positively and strongly correlated to a broad decline in consumer credit access and proper usage, that’s a serious issue that demands a response. This paper represents a great start to substantiating that claim.
Other incidental evidence points to a similar conclusion the authors have reached at this point. For example, a recent TransUnion white paper shows in its polling that sports bettors who spend at least $500 per month on that type of gambling “are more likely to manage their finances poorly.”
While the analysis and data need work, the authors of “The Financial Consequences of Legalized Sports Gambling” could be correct in their findings nonetheless. Should that be the case, the need for more compulsory education on the matters of financial literacy and safer gambling elevates.
Furthermore, jurisdictions should consider more legislation or regulations regarding the use of credit in the context of gambling along with operator monitoring for deviations in player habits. This paper begins to show how people may be gambling with more than just their bankrolls, as that activity could affect their ability to secure many of life’s necessities.
