Finance

The explosion of online sports betting is taking a toll on how people invest

Published

6 months ago

August 21, 2024

Algerina Perna | Baltimore Sun | MCT | Getty Images

The explosion of online sports betting is taking a toll on personal finances, particularly among those who are financially distressed.

That’s the conclusion of a recent paper, “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households.” The authors found that sports betting has exploded since the Supreme Court overturned a federal law prohibiting it in 2018. Since then, 38 states have legalized it and it has become a growth industry, generating more than $120 billion in total bets and $11 billion in revenue in 2023 alone.

That has put considerable sums into state coffers, but it has come at a notable personal expense to gamblers and their families. Those who participate tend to invest less and have higher debt levels.

“Our results show that not only does sports betting lead to increased betting activity, but it also leads to higher credit card balances, less available credit, a reduction in net investments, and an increase in lottery play,” the authors concluded.

The authors noted these negative effects were particularly noticeable among “financially constrained households.” That term was not defined, but the implication is that this group typically has lower savings, lower cash levels to cover expenses, higher debt levels and lower net worth.

Investing takes a hit

The authors used a quarterly panel of 230,171 households in states that have legalized gambling. About 7.7% of the households made online sports bets, with a household average of $1,100 a year.

Not surprisingly, people who gamble on sports have less money to invest, particularly in the stock market. The authors found a large decrease in net deposits to traditional brokerage accounts. “Two to three years after betting becomes legal, there is a noticeable drop in net investment relative to states where betting is not yet legal,” the report said.

The authors estimate that legalization reduces net investments by bettors by nearly 14%, and that every dollar spent on sports betting reduces net investment by $2.13.

More debt, overdrawn bank accounts

But the implications are much broader.

“The increase in betting and consumption drives an increase in financial instability in terms of decreased credit availability, increased credit card debt, and a higher incidence rate of overdrawing bank accounts,” the authors said.

This is particularly true for financially constrained households. The higher credit card debt indicates that these households are not just shifting funds from one type of entertainment to another. (For example, shifting money from betting on lotteries to betting on sports.) Instead, they are “becoming more indebted to fund an addictive losing proposition.”

Again, lower-income households suffer disproportionately; the bottom one-third of households by income had the largest increase in spending on sports gambling relative to income.

Bettors vs. non-bettors

There were notable differences between the characteristics of bettors and non-bettors.

Both groups had similar incomes, but bettors displayed riskier behavior. They were more than twice as likely as non-bettors to have ever invested in crypto or ever overdrawn their bank account. They were four times more likely to have played online poker or purchased lottery tickets.

These results are consistent with several prior studies. One 2009 study concluded gambling‐related activity is greater among low‐income investors, who tend to excessively bet on state lotteries and also are overweight risky, lottery‐type stocks.

In a pickle

The authors note the quandary for policymakers. By continuing to legalize and expand activities like sports gambling — where the vast majority lose money — the government is sending conflicting signals.

On the one hand, the government attitude is: These are adults, they have a right to spend their money any way they want to. And we need the money.

But governments have other priorities they are promoting, including encouraging saving money for retirement, that are clearly in conflict with promoting gambling.

“As legalized sports betting gains traction, it potentially undermines government efforts aimed at promoting savings through tax incentives and financial literacy programs,” the authors concluded.

“Policymakers should consider how the allure of betting might divert funds from savings and investment accounts, particularly for constrained households, which can affect household financial stability and long-term wealth accumulation.”

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Finance

Jamie Dimon calls U.S. government ‘inefficient,’ touts Elon Musk’s DOGE effort

Published

44 minutes ago

February 24, 2025

Business Finance News

Watch CNBC's full interview with JPMorgan CEO Jamie Dimon

JPMorgan Chase CEO Jamie Dimon on Monday said the U.S. government is inefficient and in need of work as the Trump administration terminates thousands of federal employees and works to dismantle agencies including the Consumer Financial Protection Bureau.

Dimon was asked by CNBC’s Leslie Picker whether he supported efforts by Elon Musk’s Department of Government Efficiency. He declined to give what he called a “binary” response, but made comments that supported the overall effort.

“The government is inefficient, not very competent, and needs a lot of work,” Dimon told Picker. “It’s not just waste and fraud, its outcomes.”

The Trump administration’s effort to rein in spending and scrutinize federal agencies “needs to be done,” Dimon added.

“Why are we spending the money on these things? Are we getting what we deserve? What should we change?” Dimon said. “It’s not just about the deficit, its about building the right policies and procedures and the government we deserve.”

Dimon said if DOGE overreaches with its cost-cutting efforts or engages in activity that’s not legal, “the courts will stop it.”

“I’m hoping it’s quite successful,” he said.

In the wide-ranging interview, Dimon also addressed his company’s push to have most workers in office five days a week, as well as his views on the Ukraine conflict, tariffs and the U.S. consumer.

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2 hours ago

February 24, 2025

Business Finance News

Finance

Berkshire advances on surge in earnings, but questions linger about cash

Published

7 hours ago

February 24, 2025

Business Finance News

Warren Buffett walks the floor ahead of the Berkshire Hathaway Annual Shareholders Meeting in Omaha, Nebraska on May 3, 2024.

David A. Grogen | CNBC

Berkshire Hathaway shares got a boost after Warren Buffett’s conglomerate reported a surge in operating earnings, but shareholders who were waiting for news of what will happen to its enormous pile of cash might be disappointed.

Class A shares of the Omaha-based parent of Geico and BNSF Railway rose 1.2% premarket Monday following Berkshire’s earnings report over the weekend. Berkshire’s operating profit — earnings from the company’s wholly owned businesses — skyrocketed 71% to $14.5 billion in the fourth quarter, aided by insurance underwriting, where profits jumped 302% from the year-earlier period, to $3.4 billion.

Berkshire’s investment gains from its portfolio holdings slowed sharply, however, in the fourth quarter, to $5.2 billion from $29.1 billion in the year-earlier period. Berkshire sold more equities than it bought for a ninth consecutive quarter in the three months of last year, bringing total sale of equities to more than $134 billion in 2024. Notably, the 94-year-old investor has been aggressively shrinking Berkshire’s two largest equity holdings — Apple and Bank of America.

As a result of the selling spree, Berkshire’s gigantic cash pile grew to another record of $334.2 billion, up from $325.2 billion at the end of the third quarter.

In Buffett’s annual letter, the “Oracle of Omaha” said that raising a record amount of cash didn’t reflect a dimming of his love for buying stocks and businesses.

“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities,” Buffett wrote. “That preference won’t change.”

He hinted that high valuations were the reason for sitting on his hands amid a raging bull market, saying “often, nothing looks compelling.” Buffett also endorsed the ability of Greg Abek, his chosen successor, to pick equity opportunities, even comparing him to the late Charlie Munger.

Meanwhile, Berkshire’s buyback halt is still in place as the conglomerate repurchased zero shares in the fourth quarter and in the first quarter of this year, through Feb. 10.

Some investors and analysts expressed impatience with the lack of action and continued to wait for an explanation, while others have faith that Buffett’s conservative stance will pave the way for big opportunities in the next downturn.

“Shareholders should take comfort in knowing that the firm continues to be managed to survive and emerge stronger from any economic or market downturn by being in a financial position to take advantage of opportunities during a crisis,” said Bill Stone, chief investment officer at Glenview Trust Company and a Berkshire shareholder.

Berkshire is coming off a strong year, when it rallied 25.5% in 2024, outperforming the S&P 500 — its best since 2021. The stock is up more than 5% so far in 2025.