How sports betting replaced the stock market
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Americans put less money into their brokerage accounts in states where sports gambling has been legalized, per a new paper that has caused something of a stir.
Why it matters: 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.
The big picture: 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.
Between the lines: 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.
What they found: 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.
- After three years, the amount invested was about $50 per quarter lower than it was pre-legalization.
The bottom line: When the rich elide consumption and investment, it doesn't affect their standard of living. When working-class folks do so, however, it can.
*Fun fact: "Average" here doesn't mean a simple arithmetical mean. Instead, per Kevin Pisciotta of the University of Kansas, one of the authors, "each point is a complicated weighed conditional mean based on the Boruskyak et al estimator." Glad that's cleared up.
