Finance

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

Published

8 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

China’s response to U.S. tariffs will likely focus on stimulus, trade

Published

2 hours ago

April 3, 2025

Business Finance News

Chinese national flags flutter on boats near shipping containers at the Yangshan Port outside Shanghai, China, February 7, 2025.

Go Nakamura | Reuters

BEIJING — China’s reaction to new U.S. tariffs will likely focus on domestic stimulus and strengthening ties with trading partners, according to analysts based in Greater China.

Hours after U.S. President Donald Trump announced additional 34% tariffs on China, the Chinese Ministry of Commerce called on the U.S. to cancel the tariffs, and vowed unspecified countermeasures. The sweeping U.S. policy also slapped new duties on the European Union and major Asian countries.

Chinese exports to the U.S. this year had already been hit by 20% in additional tariffs, raising the total rate on shipments from China to 54%, among the highest levied by the Trump administration. The effective rate for individual product lines can vary.

But, as has been the case, the closing line of the Chinese statement was a call to negotiate.

“I think the focus of China’s response in the near term won’t be retaliatory tariffs or such measures,” said Bruce Pang, adjunct associate professor at CUHK Business School. That’s according to a CNBC translation of the Chinese-language statement.

Instead, Pang expects China to focus on improving its own economy by diversifying export destinations and products, as well as doubling down on its priority of boosting domestic consumption.

Watch for cascading tariffs as tariffs reroute trade within Asia, says economist

China, the world’s second-largest economy, has since September stepped up stimulus efforts by expanding the fiscal deficit, increasing a consumption trade-in subsidy program and calling for a halt in the real estate slump. Notably, Chinese President Xi Jinping held a rare meeting with tech entrepreneurs including Alibaba founder Jack Ma in February, in a show of support for the private sector.

The policy reversal — from regulatory tightening in recent years — reflects how Beijing has been “anticipating the coming slowdown or even crash in exports,” Macquarie’s Chief China Economist Larry Hu said in a report, ahead of Trump’s latest tariff announcement. He pointed out that the pandemic-induced export boom of 2021 enabled Beijing to “launch a massive regulatory campaign.”

“My view stays the same,” Hu said in an email Thursday. “Beijing will use domestic stimulus to offset the impact of tariffs, so that they could still achieve the growth target of ‘around 5%.'”

Instead of retaliatory tariffs, Hu also expects Beijing will focus on still using blacklists, export controls on critical minerals and probes into foreign companies in China. Hu also anticipates China will keep the yuan strong against the U.S. dollar and resist calls from retailers to cut prices — as a way to push inflationary pressure onto the U.S.

China’s top leaders in early March announced they would pursue a target of around 5% growth in gross domestic product this year, a task they emphasized would require “very arduous work” to achieve. The finance ministry also hinted it could increase fiscal support if needed.

About 20% of China’s economy relies on exports, according to Goldman Sachs. They previously estimated that new U.S. tariffs of around 60% on China would lower real GDP by around 2 percentage points. The firm still maintains a full-year forecast of 4.5% GDP growth.

Changing global trade

What’s different from the impact of tariffs under Trump’s first term is that China is not the only target, but one of a swath of countries facing hefty levies on their exports to the U.S. Some of these countries, such as Vietnam and Thailand, had served as alternate routes for Chinese goods to reach the U.S.

At the Chinese export hub of Yiwu on Thursday, businesses seemed nonchalant about the impact of the new U.S. tariffs, due to a perception their overseas competitors wouldn’t gain an advantage, said Cameron Johnson, a Shanghai-based senior partner at consulting firm Tidalwave Solutions.

He pointed out that previously, the U.S. had focused its trade measures on forcing companies to remove China from their supply chains and go to other countries. But Chinese manufacturers had expanded overseas alongside that diversification, he said.

“The reality is this [new U.S. tariff policy] essentially gives most of Asia and Africa to China, and the U.S. is not prepared,” Johnson said. He expects China won’t make things unnecessarily difficult for U.S. businesses operating in the country and instead will try harder to build other trade relationships.

Since Trump’s first four-year term ended in early 2021, China has increased its trade with Southeast Asia so much that the region is now Beijing’s largest trading partner, followed by the European Union and then the U.S.

The 10 member states of the Association of Southeast Asian Nations (ASEAN) joined China, Japan, South Korea, Australia and New Zealand in forming the world’s largest free trade bloc — the Regional Comprehensive Economic Partnership (RCEP) — which came into being in early 2022. The U.S. and India are not members of the RCEP.

“RCEP member countries will naturally deepen trade ties with one another,” Yue Su, principal economist, China, at the Economist Intelligence Unit, said in a note Thursday.

“This is also partly because China’s economy is likely to remain the most — or at least among the most—stable in relative terms, given the government’s strong commitment to its growth targets and its readiness to deploy fiscal policy measures when needed,” she said.

Uncertainties remain

The extent to which all countries will be slapped with tariffs this week remains uncertain as Trump is widely expected to use the duties as a negotiating tactic, especially with China.

He said last week the U.S. could lower its tariffs on China to help close a deal for Beijing-based ByteDance to sell TikTok’s U.S. operations.

But the level of new tariffs on China was worse than many investors expected.

“Unlike some of the optimistic market forecasts, we do not expect a US-China bilateral grand bargain,” Ting Lu, chief China economist at Nomura, said in a note Thursday.

“We expect tensions between these two mega economies to worsen significantly,” he said, “especially as China has been making large strides in high-tech sectors, including AI and robotics.”