Declining Credit Scores in Sports Betting States, Says UCLA, USC

Posted on: August 4, 2024, 03:00h. 

Last updated on: August 4, 2024, 12:32h.

Consumers in states with legalized sports wagering are experiencing declines in credit scores and an uptick in bankruptcy filings, according to a new study by the University of California Los Angeles (UCLA) and the University of Southern California (USC).

To date, the deterioration in consumer credit ratings in states that allow sports betting has been modest. UCLA and USC note the average drop in credit scores after a state permits sports wagering is 0.3%. Currently, 38 states and Washington, DC permit betting on sports.

The decline in credit score is associated with changes in indicators of excessive debt. We find a substantial increase in bankruptcy rates, debt collections, debt consolidation loans, and auto loan delinquencies. We also find that financial institutions respond to the reduced creditworthiness of consumers by restricting access to credit,” according to the study.

The universities examined consumer credit trends in states in the first month after some form of sports betting — online or retail — was authorized. From there, the researchers differentiated between wagers that were placed at brick-and-mortar sportsbook and those place via computers and mobile apps.

Online Sports Betting Trends Worse

The UCLA/USC research team observed that softness in consumer credit and loan delinquencies accelerated more rapidly in jurisdictions that allow online sports betting.

“In states that allow online/mobile gambling, the decrease is roughly three times larger, suggesting that legal sports gambling does worsen consumer financial health, especially so when mobile access is allowed,” noted the study. “we focus on states with online access to gambling, we also find a roughly 28% increase in bankruptcy likelihood and an 8% increase in debt collection amounts, both statistically significant. These effects generally appear roughly two years after when gambling became legal.”

For operators, that’s relevant because there’s growing evidence, including rising unemployment, that the US economy is slowing.  Last week, the Philadelphia Federal Reserve said the number of credit card accounts past due in the first quarter reached the highest levels since the survey started 12 years ago and the New York Federal Reserve says almost 20% of consumers are maxed out on their credit cards.

Other Credit Concerns Stemming from Sports Betting

The UCLA/USC study also noted that the demographics most vulnerable to financial hardship stemming from sports betting are young people and those in lower income brackets. The researchers also highlighted an alarming trend in consumer bankruptcy filings in states allowing online sports wagering — one that takes awhile to appear.

“Three to four years after the legalization of online sports gambling, we observe that the likelihood of bankruptcy filing increases by as much as 25-30% when compared to pre-treatment levels,” observed the research team.

It’s possible to contest the links between sports betting and financial distress. In WalletHub’s recently released survey of state-level  consumer financial distress, two of the 10 most distressed states — Texas and Georgia — don’t allow any form of sports betting. On the other hand, each of the 10 states with the least financially distressed consumers allow sports wagering and eight have mobile betting.