Online Sports Betting Is Gaining Popularity — at the Expense of Traditional Investing

Despite reaching historic highs in stock ownership, American households are increasingly diverting funds away from the stock market toward online sports betting. This concerning trend represents a fundamental shift in how younger Americans approach their financial futures, with significant implications for long-term wealth accumulation and financial security.

The Rise of Sports Betting at the Expense of Stock Market Investment

The S&P 500 and Dow Jones Industrial Average have reached new records as earnings season unfolds. However, beneath this positive market performance lies a troubling reality: a growing number of investors are abandoning traditional stock market investments in favor of online sports betting. This shift accelerated dramatically following the Supreme Court’s 2018 decision to overturn the Professional and Amateur Sports Protection Act, commonly known as the Bradley Act.

The numbers tell a compelling story about this behavioral shift. In 2018, Americans placed $6.6 billion in online sports bets. By 2023, that figure had exploded to more than $121.1 billion. Through 2024, Americans have already wagered $84.5 billion on sports, with the year still ongoing. Online sports betting is now legal in 38 states and Washington, D.C., making it more accessible than ever before.

A particularly revealing study conducted by Scott Baker, an associate professor of finance at Northwestern University, discovered something striking: households increased their sports bets by $1,100 per year while simultaneously decreasing their stock market investments by 14% when states legalized sports betting. This inverse relationship demonstrates that consumers are consciously choosing gambling over investing.

The Financial Consequences of This Trend

The implications of this shift extend far beyond simple preference changes. As this trend continues to develop, it creates concerning consequences for household budgets and long-term investment prospects. The growing popularity of online sports betting has been coupled not only with decreased traditional investments but also with lower credit scores, higher credit card debt, and increased rates of account overdrafts.

This pattern is particularly alarming when considering that the top 50% of wealthy Americans own 99% of all stocks, while the bottom 50% of American earners hold just 1%, according to Federal Reserve data. Lower-income households that might benefit most from long-term stock market investments are precisely those most vulnerable to the short-term gratification of sports betting.

For low-savings households that rely on investments for their financial future, disruptions to long-term growth can be extremely difficult to recover from. The instant gratification provided by online sports betting makes it particularly attractive to those struggling financially, even though it often exacerbates their problems rather than solving them.

Understanding the Fundamental Differences Between Gambling and Investing

It is crucial to understand the distinctions between gambling and investing, two behaviors that are sometimes erroneously conflated. These differences are substantial and have profound implications for long-term financial health.

Ownership and Control

The first fundamental distinction is that stocks involve ownership. When you purchase shares in a company, you maintain an interest—albeit often a small one—in the ongoing affairs of that publicly traded company. As a shareholder, you have certain rights and participate in the company’s success or failure. Conversely, when you place a bet on a sports outcome, you own nothing. You have no stake in any underlying asset; you are simply wagering on an outcome over which you have no influence or control.

Risk, Reward, and Statistical Outcomes

While both investing and gambling involve degrees of risk and reward, the mechanisms and likely outcomes differ dramatically. Investing can produce steady gains over time through compounding returns and market growth. Gambling, by contrast, involves short-term risk with historically negative statistical outcomes for the vast majority of participants.

Consider the concrete evidence: investing in an S&P 500 index fund, which mirrors the performance of the broad stock market, has produced an average annual return of 10.52% over the past 30 years. This consistent, positive return has been achieved through passive investing—simply holding a diversified portfolio over time.

Conversely, researchers at the University of California, San Diego found that of more than 700,000 gamblers they surveyed in 2024, 96% lost money to online betting. Only 4% turned a profit. These statistics demonstrate the mathematical reality that online sports betting is structured in favor of sportsbooks, not bettors.

Regulatory Oversight and Transparency

Another critical distinction involves regulatory oversight and access to information. Publicly traded companies are regulated by the U.S. Securities and Exchange Commission and are required to file quarterly earnings reports. These reports provide investors with access to transparent balance sheets, income statements, and other financial data that can help prospective and current shareholders make informed decisions and hedge against potential losses.

Online sports betting largely operates on assumptions about athletes’ performances, weather conditions, and other circumstantial, unsound, and highly speculative factors. There is no regulatory body mandating transparency about odds calculations or providing independent verification of fair wagering practices in the same manner the SEC oversees stock markets.

The Mathematics of Profitability: Investing vs. Betting

Understanding the mathematical realities of both activities provides clear insight into why one is suitable for long-term wealth building while the other is not. Baker explains: “Year to date, if you’re up 15% in an investment but you’re losing to the market, you’re still up 15%. With sports betting, you may need a 20% edge just to break even.” This illustrates a critical point—even underperforming investors can achieve positive returns, while sports bettors must consistently predict outcomes with unusual accuracy just to break even after accounting for the sportsbook’s edge.

To illustrate the power of compound investing versus betting, consider this comparison: if you invested $150 monthly in the stock market with a conservative 6% annual return over 25 years, that amount would grow to approximately $101,936. The same $150 wagered monthly on sports betting would likely result in losses approaching the total amount bet, with a 96% probability of losing money over that period.

Cognitive Distortion and the Illusion of Skill

An important psychological factor driving sports betting adoption is what experts call cognitive distortion—the false belief that people can predict winners simply because they understand sports. Someone who watches a lot of sports might believe they can predict winners better at a sportsbook than they could at a casino slot machine. They may fully understand that a slot machine is entirely random, but the illusion of control with sports betting makes them more likely to gamble.

For example, assuming the Miami Dolphins will cover a 10-point spread because the Buffalo Bills aren’t acclimated to subtropical temperatures and stayed out too late in South Beach is simply gambling dressed up as analysis. While an avid fan might believe they have better odds with a familiar team, this is merely a manifestation of cognitive distortion rather than a basis for sound financial decision-making.

Key Differences: A Comparison Table

The Broader Financial Impact on American Households

The trend toward sports betting comes at a particularly concerning time. Americans continue to struggle with inflation, and a worrying percentage of people are projected to exhaust their savings during retirement. When lower-income households—those most dependent on long-term investments—divert funds toward sports betting instead, they significantly compromise their financial security.

The evidence of financial stress from this shift is clear. Households engaging in sports betting show decreased traditional investments coupled with lower credit scores, higher credit card debt, and increased rates of account overdrafts. These indicators suggest that sports betting is not simply a hobby but is becoming a serious drain on household finances, particularly for those least able to afford losses.

Frequently Asked Questions

Q: How much have Americans wagered on sports betting since 2018?

A: Since the Supreme Court overturned the Bradley Act in 2018, online sports betting has grown exponentially. In 2018, Americans wagered $6.6 billion. By 2023, that figure reached $121.1 billion, with $84.5 billion wagered by mid-2024 alone.

Q: What percentage of sports bettors actually make money?

A: According to University of California, San Diego researchers who surveyed over 700,000 gamblers, only 4% turned a profit from online betting. The remaining 96% lost money, making sports betting statistically unfavorable for the vast majority of participants.

Q: How does this affect lower-income households?

A: Lower-income households are particularly vulnerable since the top 50% of wealthy Americans own 99% of all stocks while the bottom 50% hold just 1%. When these households choose betting over investing, they lose access to wealth-building opportunities they can least afford to miss.

Q: What is the difference between passive investing and active betting?

A: Passive investors in index funds achieve average returns of 10.52% annually over 30 years, even if underperforming the market. Sports bettors must achieve a 20% winning edge just to break even after accounting for the sportsbook’s margin.

Q: How does the SEC regulate sports betting compared to stock markets?

A: Publicly traded companies face SEC regulation requiring quarterly earnings reports and transparent financial disclosures. Sports betting operates with minimal transparency, relying instead on assumptions about athletic performance and circumstantial factors.

Q: Why do sports fans believe they have an advantage in betting?

A: This represents cognitive distortion—the false belief that sports knowledge translates to predictive ability. While fans understand slot machines are random, they often incorrectly assume their sports expertise gives them a meaningful advantage in sports betting.

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medha deb

 

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

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