Amid March Madness Betting Surge, Fed Study Warns of Rising Loan Delinquency Rates

By the end of March Madness, Americans are expected to have wagered $3.3 billion on the men’s and women’s basketball tournaments. But the Federal Reserve Bank of New York is warning that the spike in sports betting is having a negative impact on Americans’ credit scores.A trade group that represents the casino industry, AGA, says there has been a 54 percent increase in betting on college basketball tournaments over the last three years. Since 2018, when the Supreme Court allowed the legalization of sports betting, it is estimated that Americans have wagered more than $520 billion on sports.But the thrill of putting some skin in the game, and the potential to win some money, is harming the finances of Americans, especially those under 40. In a recent study, the New York Fed found that delinquency on all forms of debt “rose steadily in legal counties and surpassed half a percentage point three years after legalization.” “In our Staff Report, we show that the overall increase in delinquency is driven by borrowers under the age of 40. Following legalization, the share of under-40 borrowers who are delinquent rises by 1.02 percentage points for credit cards and 0.55 percentage points for auto loans,” the report said.The authors said that when they focused only on the 3 percent of people who newly took up sports betting after legalization, the implied increase in the delinquency rate roughly doubled.A separate study, released last year by a group of researchers from Harvard, the University of California, and the University of Southern California, found that credit scores in states that legalized sports betting dropped by 0.3 percent. In states where online sports betting is allowed, the drop was nearly three times as large.Meanwhile, bankruptcy rates increased by up to 30 percent within three to four years after legalization. Additionally, credit card usage rose 4 percent, and credit card limits were reduced, on average, by 3 percent. For young men, the decreases were even more pronounced, with a 0.5 percent drop in credit scores. For young men in “low-income areas,” there was a 0.46 percent decrease in credit scores. Proponents of legalizing sports betting argue that would-be bettors benefit from a safer market that better protects their private information and ensures they get their payouts. Many laws require that some tax revenue be set aside to fund gambling addiction programs. Advocates of sports betting also argue that legalizing the betting markets boosts state coffers, enabling them to provide more public services without having to raise taxes. It is estimated that sports betting generated $2.71 billion in state tax revenue across the 39 states and Washington that have legalized sports betting between January and September of last year. But while critics of sports betting have warned that it is harming Americans’ finances, the New York Fed predicts that there may be “incentives” for more states to legalize sports betting. The authors note that residents in states where sports betting is not legal are traveling to states where it is legal to cast their bets. “States that are not legal themselves bear negative consequences of sports betting without the tax revenue to offset these costs,” the New York Fed says. “The negative consequences without compensating tax revenue may create incentives for states to legalize, particularly those with population centers near legal states.”

Amid March Madness Betting Surge, Fed Study Warns of Rising Loan Delinquency Rates

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