Clark Jeffries
Mar 1, 2023
Reviewing the current status of legalized sports gambling against the backdrop of economic uncertainty
Marching into Madness
As we spring forward into March, many of us are looking forward to warming weather, early spring flowers emerging, and March Madness.
March Madness is well engrained in American culture. Most of us can recall early childhood memories of watching games on the TVs at school, our favorite teams winning (or losing), and major upsets the “bust” our brackets. Many of us have been filling out tournament brackets since early childhood.
You may have even heard that in 2014 Warren Buffet’s company, Berkshire Hathaway, teamed up with Dan Gilbert’s Quicken Loans to pay $1 billion to whoever may end up with a perfect March Madness bracket.
Should a contestant have managed this ridiculously unlikely feat (the chances of filling out the perfect bracket are one in 9.2 quintillion—a nine with 18 zeroes), the sum would have been doled out in 40 annual installments of $25 million.
As sports gambling has become more popular, and regulations have eased across many states in America including the popularity of prop-bet websites like DraftKings, we can expect a massive amount of money to be poured into gambling platforms.
I’ve long been troubled by the lack of financial education and how that impacts the revenue and profitability of state-run lotteries (sometimes referred to as a tax on the poor). We’re in the midst of a significant economic downturn, but gambling revenues continue to shatter expectations and previous records.
We’re also in the midst of an aging population where the oldest Americans maintain a vast majority of the wealth that will be passed down to younger generations that have significant gaps in financial literacy. The median American had $40,000 of stocks as of 2019 and only 58% of Americans own any stocks.
As Americans get excited for a new season of sports, gambling profits are expected to continue to soar. For those with disposable who understand that it’s unlikely to lead to any profits and are able to keep their wagers modest, the risk is low. However, gambling is an addictive habit that many Americans likely can’t afford.
We live in a society where delayed gratification is shunned, and get rich quick schemes and a short-term, “you only live once” mindset reigns king amongst the younger generation. All of us would benefit from investing any amount, even small wagers, as opposed to losing that money consistently overtime.
Gambling is becoming more mainstream
According to the American Gambling Association nearly 21 million Americans were expected to bet a collective $3.1 billion dollars on the 2022 March Madness tournament. This equates to around $150 per person.
With the increased legalization of gambling across America, we would expect this number to grow this year.
Last month, the American Gambling Association estimated 50 million Americans would wage a collective $16 billion dollars on the Super Bowl (average wage of $320). Of those 50 million Americans, an expected 30 million Americans are expected to place a traditional sports wager online, at a retail sportsbook, or with a bookie (up 66% from 2022).
Sports betting legalization is also driving fan interest in the NFL, as more than a third (34%) of NFL fans say that the expansion of legal sports betting has made watching an NFL game more exciting.
In another study, of the 1,126 Americans ages 21 to 29 surveyed by CivicScience in December 2021, more than half (53%) said they bet on sports online.
The American Gambling Association reported that 2022 gaming revenue soared past the previous record, growing nearly 14%. Despite persistent concerns about the financial health of American consumers throughout 2022, the U.S. gaming industry generated record-breaking revenue for a second consecutive year.
According to data compiled by the American Gaming Association, commercial gaming revenue – encompassing traditional casino games, sports betting and iGaming – reached $60.42 billion in 2022, a 13.9 percent increase over 2021 and 38.5 percent higher than 2019.
It’s reported that nearly 35% of American adults visited a casino last year. Sports betting and iGaming saw tremendous growth in 2022, setting new annual records including quarterly highs in Q4.
Nationwide sports betting revenue soared 72.9 percent year-over-year, from $4.34 billion in 2021 to $7.50 billion in 2022, as Americans bet a total of $93.2 billion on sports throughout the year. The growth was driven by the launch of legal betting in Kansas and the addition of mobile betting in Louisiana, Maryland and New York.
That increased revenue has led to an increase in advertising as well.
Now, people are inundated with advertisements on platforms like ESPN, the CW, YouTube videos, Instagram stories by their favorite content creators advertising things like DraftKings and other similar gambling websites. Regulations against gambling and casinos advertisements aren’t incredibly strict and we have regulators who in the most charitable of views are asleep at the wheel. More likely, they are receiving political contributions and are incentivized to keep these regulations lax.
Many popular streaming sites had allowed content creators to broadcast themselves playing online slots and other casino games. The conflict of interest is obvious.
The status of investing in America
This is against a backdrop of 42% American adults who own no stocks. According to research by the Federal Reserve, the median family has $40,000 in stocks as of 2019.
The top 1% of stock owners account for 53% of stock ownership, worth about $16.76 trillion. The bottom 50% of American adults holds only 0.6% of stocks, worth $19 billion.
As of Q3 2022, 89.1% of stock owners are white, 9.3% are classified as other, 1.1% are black, and 0.5% are Hispanic. For context, according to the census as of July 2022, the American population is 75.8% white, 13.6% black, and 18.9% Hispanic.
Baby boomers have the largest share of stocks and they're not letting go. They hold 56.3% of stocks, their highest total on record, which is valued at $17.79 trillion.
It's no surprise that baby boomers hold a large amount of stock. They've had plenty of time to build wealth via Wall Street and see their investments grow. Average net worth goes up as Americans age, which often means older Americans have more wealth to put into the stock market.
However, Gen Xers and millennials have increased their holdings, as well. Gen Xers own 25.5% of stocks, worth $8.05 trillion. Millennials own 2.3% of stocks, worth $720 billion. The latter group presumably includes Gen Z investors, since the Federal Reserve hasn't separated them yet.
In research by the Motley Fool on what Gen Z and millennials buy, they found that 57% of investors in this age range invest in the stock market.
Investing adds up
Investing even small amounts of money over a long enough period can have serious long-term benefits.
Based on an average return of 7% per year and assuming the average Superbowl wager of $320 was invested instead of gambled, you could ehave the below amounts at different time periods:
*Note, investment returns are not guaranteed. Investing involves the risk of loss.
For most Americans, the idea of becoming a millionaire seems completely out of reach and unattainable. Unfortunately, the American education system and social norms don’t emphasize financial education. So many of us felt underserved by our school systems; sure, we learned basic Algebra, but not basic finances. Quickly for many Americans they’re pushed to go to higher education right out of college, take out a loan, and get a degree that may or may not be a good return on that investment.
They are a variety of free tools to see what a periodic investment at a rate of return might end up being in a future time. We like this tool hosted at Investor.Gov.
The questions then become: How much can I save? How much do I need to save? What will I need to be able to retire?
Again, there are free tools available online and plenty of books and educational content that can help answer those questions. For a more complex and a better understanding of your situation, look to work with a financial advisor. Importantly, ensure that you’re working with an advisor who acts as your fiduciary. In many situations, younger investors are pushed into investment products that non-fiduciary advisors earn a commission on that may not be in your best interest.
But isn’t the stock market a casino?
The stock market and casinos are often compared because they both involve risk and the possibility of making or losing money. However, there are significant differences between the two.
The stock market is a platform where investors buy and sell shares of companies with the hope of earning a profit as the company grows and becomes more profitable. The stock market reflects the overall health of the economy and is influenced by a variety of factors such as economic indicators, company performance, government policies, and global events.
On the other hand, casinos offer games of chance, such as slot machines, card games, and roulette, where the outcome is determined by luck or probability. Players place bets with the hope of winning money, but the odds are stacked against them, meaning that the casino has an advantage over the player.
When it comes to returns, the stock market has historically provided an average annual return of the based on the S&P 500 index of 9.8% between 1928 and 2019. In contrast, the odds of winning at a typical casino game are often less than 50%, and the average return for casino games is negative, meaning that over time, players will likely lose more money than they win.
When it comes to sports gambling, the sports book will pay out less than 100% of what was wagered. For example, if two betters placed opposing bets, $320 on the Chiefs and $320 on the Eagles, the sports book would have paid the winner less than $640. This “cut,” or percentage is referred to as the vig on the bet and represents a guaranteed profit for the casino or sports book.
Financial literacy is a challenge
Teaching financial capability is important because youth are increasingly facing higher levels of debt. We also live in an age of information, which brings an age of disinformation as well. Separating financial noise from prudent and good financial advice can be difficult.
The average debt of students when they graduated from college rose from $18,550 (in 2004) to $28,950 (in 2014), an increase of 56 percent.
From 2004 to 2009, the median credit card debt among college students increased 74 percent.
Unfortunately, many youths have not received either formal or informal guidance on financial matters. So, they may not be ready to make sound financial choices:
A survey of 15-year-olds in the United States found that 18 percent of respondents did not learn fundamental financial skills that are often applied in everyday situations, such as building a simple budget, comparison shopping, and understanding an invoice.
A report on the results of a financial literacy exam found that high school seniors scored on average 48 percent correct, showing a strong need for more comprehensive financial education for youth in high school.
According to the 2008 wave of the National Longitudinal Survey of Youth, only 27 percent of youth knew what inflation was and could do simple interest rate calculations.
Financial illiteracy is more common among low-income individuals because they typically do not have wide access to accurate financial information. With such illiteracy, youth in low-income households can fall victim later as adults to scams, high-interest rate loans, and increasing debt. Training low-income individuals in financial management can be an effective way to improve their knowledge in five areas:
predatory lending practices,
public and work-related benefits,
banking practices,
savings and investing strategies,
and credit use and interest rates.
Young people often learn about money informally through socialization, such as observing and listening to their caregivers, influential adults, and peers. Youth are not consistently introduced to more formal instruction on money matters—for example, through a classroom curriculum or other training on saving, spending, allowances, and the importance of focusing on short-term goals (i.e., purchasing an item, saving money, paying off a debt) to be able to get to long-term financial goals (i.e., saving for college, buying a house).
This trend applies to American adults as well. According to a recent survey conducted by Standard & Poor’s, only 57% of U.S. adults are financially literate. This was measured by those exhibiting knowledge across the following four basic financial concepts: risk diversification, numeracy, inflation, and compound interest.
Another study conducted in 2022 by Ipsos on behalf of Money Masters found the average American is only moderately confident in their level of financial literacy, while some are overconfident.
The average American rates their level of financial literacy as a 6.2 out of ten.
Boomers (6.1), Gen X (6.3), and Millennials (6.1) rate themselves as more financially literate than Gen Z (5.4).
Those with a college degree (6.7) believe themselves to be more financially literate than those without one (5.7), as do Americans with higher household incomes compared to those with lower household incomes.
Roughly one in four that consider themselves financially literate were found not to be based on the results of the quiz.
The positives and negatives
The data on how many people invest in the stock market leads us to be optimistic but does also highlights serious issues.
It's encouraging that 58% of American adults own stock, but I believe this number to still be way too low. This number has climbed from 32% in 1989 and we hope this trend continues.
Younger generations are also gradually investing more. Millennials have increased their stock ownership over the last decade. Gen Z investors are learning how to invest in stocks and entering the market, as well.
On the other hand, we can't ignore the fact that the wealthiest Americans own far more stock than 90% of the country. Stock ownership rates are also low among Hispanic and Black households.
We’re also worried that younger generations may fall prey to the gamification of stock ownership (made popular through systems like Robinhood) or may become disheartened and fearful of the stock market after the 2020 COVID stock market and the subsequent economic and stock market downturn.
While starting to invest may seem daunting, it's a step worth taking for the 42% of Americans that currently don't own stocks. The average stock market return is about 10% per year, so investing is a great way to save for retirement. Done for a long enough time period with consistency, Americans can help lift their families above their current economic status, create generational wealth, retire with comfort, give to causes and charities they care about, and live a life worth living.
If you're new to investing, here are a few tips to help you get started:
Build a diversified portfolio through low-cost index funds. This greatly reduces risk since you're not reliant on a handful of companies.
Invest regularly, whether through an individual brokerage account or retirement accounts (or both!). Even if you're only investing a small amount per month, doing this consistently is key to building wealth.
Most importantly, invest for the long haul, holding onto your portfolio through market volatility.
Being a successful investor isn't as difficult as you might think. If you buy and hold a diversified portfolio rebalance regularly, and invest according to your goals, risk tolerance, and time horizon, it can generate great financial rewards in the long run.
Citations:
https://www.americangaming.org/resources/super-bowl-lvii-wagering-estimates/
https://www.americangaming.org/resources/march-madness-2022/
https://www.fool.com/research/how-many-americans-own-stock/
https://www.americangaming.org/resources/aga-commercial-gaming-revenue-tracker/
https://www.fool.com/investing/how-to-invest/stocks/average-stock-market-return/
https://youth.gov/youth-topics/financial-capability-literacy/facts
https://www.annuity.org/2022/07/19/is-financial-illiteracy-a-growing-problem-in-the-us/