Americans are cannibalizing their retirement savings to gamble on sports

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As legalized sports betting becomes increasingly accessible with mobile apps such as DraftKings and FanDuel, a new study from BYU Finance professors is finding people are saving less to fuel gambling habits.

The research, authored by BYU Marriott School of Business professors Mark Johnson and Jason Kotter, and published in the Journal of Financial Economics, analyzes transaction data from 184,000 households. They found households cut their net investment in brokerage accounts by 20% following the legalization of sports betting. And the heaviest bettors cut their investment deposits by more than half: for every dollar they put into a betting app, roughly 20 cents never made it into long-term savings.

In other words, more and more people — including those who had little savings to begin with — are treating gambling as an investment, even though the data shows sports betting is a terrible financial strategy.

“If you have a diversified investment portfolio like an S&P index, it consistently makes money over a long period,” Kotter said. “With sports betting, you might win occasionally, but if you look over a window of six months or longer, only a tiny fraction of people do better than break even. If you think you are going to make a lot of money betting, you are expecting to be an extreme exception in the data.”

Johnson and Kotter expected to see betting displace other entertainment spending — fewer concert tickets, fewer nights out — not from funds they otherwise would have saved or invested. Instead they found it’s increasingly common that someone will cut a quarterly $200 Vanguard deposit in half in order to fuel a FanDuel account.

The revoke of the federal ban on sports betting changed the game, pairing sports betting as both a form of entertainment and a possibility for legal economic gain. Tracking line-ups and player progression has evolved from a fun pastime to a seemingly profitable venture.

“Many people consume sports and feel like they are experts on their favorite teams or players,” Kotter said. “This can make them overconfident, leading them to believe they have an informational advantage and a potentially profitable strategy. But very few bettors make money."

The researchers discovered that bettors see online sports betting as a form of investment — more sure or as sure of a money maker as traditional investments. This is especially true, they found, when general public expectations for the economy are low and people are worried that investing won’t have the same returns.

“You see people talking about buying equity in the stock market as if it's a gamble,” Kotter said. “Particularly for younger people, accumulating the kind of wealth you might need to buy a house feels so far out of reach. So sports betting also becomes about the potentially immense returns. You take a long shot bet you're almost surely going to lose, but if you win, it's big.”

Not only are bettors saving less, but they’re actually spending more. Johnson and Kotter found that frequent bettors also increased spending in sports-adjacent categories like restaurants, bars, and cable television, further blurring the line between entertainment and investment.

“It creates an exacerbating effect where they not only draw money from investment accounts but also spend more in places they wouldn't have without the legalization of sports betting,” Johnson said. “They view it as both entertainment and investing; they go to a restaurant with friends to watch the game and discuss their bets together.”

For Johnson and Kotter, their findings reflect a need to protect families and teach bettors to adapt to the possible detrimental effects of sports betting legalization and online accessibility.

“We are not going to get rid of sports betting nationwide,” Kotter said. “So the conversation must focus on alleviating the worst harms. We need to break the mental link between sports betting and good financial returns by helping people understand the actual data and probabilities of making money.”

Scott Baker of the University of Wisconsin, Justin Balthrup at the University of Nebraska and Kevin Pisciotta of the University of Kansas served as co-authors on the study.

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