Gambling: Roll of the Dice…

This past weekend, in addition to an estimated 120k mint juleps consumed, it is thought that over $150 million was wagered on the Kentucky Derby (spoiler alert: Medina Spirit won going out at 12-1 odds). This is a fraction of the $500 million wagered on this year’s Super Bowl. And it almost does not even register when one considers all legal and illegal betting in the U.S., thought to be well north of $200 billion according to the American Gaming Association (AGA), which is approximately the GDP of Greece.

Studies by the National Council of Problem Gambling concluded that 15% of all Americans gamble once a week, while 2-3% are considered to have a “gambling problem” (i.e., addicted). How much is lost every year due to gambling is obviously quite difficult to determine, but according to the research firm H2 Gambling Capital, bettors in the U.S. are thought to have lost $117 billion in 2016. A new generation of gamblers appears to have been created as it is now believed that 6-9% of all youth have serious gambling issues. estimates that 6% of all college students are addicted. estimates that 750k people between the ages of 14-21 are gambling addicts.

It is important to put the gaming industry into some context. The American Gaming Association (AGA) sizes the industry at $261 billion, slightly larger than all advertising spend in the U.S. Proudly, the AGA counts 727k employees and observes that gaming contributes $40.8 billion in annual tax receipts. It is that last claim that makes determining how damaging gambling is to the health of Americans so tricky to assess.

The pandemic was obviously not kind to the gaming industry this past year. According to AGA data, total “gross gaming revenues” (GGR) – the legal portion of gambling activity, which appears to reflect only about a quarter of what is actually bet each year – was $30.0 billion in 2020, a 31% decrease from 2019. Slots and table games accounted for $18.9 and $5.1 billion, respectively, and both declined 34% and 39% year-over-year. Much of the growth in gambling has shifted to sports betting ($1.5 billion, 69% increase year-over-year) and “iGaming” ($1.6 billion, 199% increase). According to AGA forecasts, those two categories are projected to be $8.0 and $20.0 billion in revenues by 2024, respectively. While monthly GGR snapped back reasonably quickly, it still has not quite recovered to pre-pandemic levels.

To be clear, the data above are revenues, not the amounts wagered. In 2019, according to the AGA, legal sports gambling was estimated to be $13 billion, which generated $909 million in revenues. In just the first two months of 2021, sports betting was $7.8 billion, generating $576 million in revenues; January 2021 alone was $4.4 billion of wagers.

The obvious driver of sports betting was the 2018 Supreme Court ruling which allowed states other than Nevada to offer sports gambling. Today, 21 states and Washington, D.C. offer such services. Interestingly, and perhaps not surprisingly, according to a recent WalletHub survey, Nevada was ranked #1 as the most “Gambling-Addicted” state while Utah was ranked #50. Unfortunately, Nevada only ranked fifth for states offering gambling treatment services, and even though Utahns for the most part do not require such services, the Beehive State ranked an impressive twentieth in the level of services offered.

Coincident with the change in state laws (although the 1961 Wire Act still stands which restricts remote gambling across state lines), there was an explosion of sports gambling websites and apps such as FanDuel and DraftKings, both of which kick-off with enticements of fantasy experiences. The power of the gamification of sports gambling boomed this past year with most people locked down, eagerly searching for novel forms of entertainment. InvestGame identified $33.6 billion worth of deal activity across 664 transactions in 2020, of which $5.9 billion was private investments (versus $15.1 billion in public offerings and $12.6 billion in M&A deals). The profitability and growth opportunities in gambling are not lost on public equity investors.

Data:, Yahoo Finance; Chart: Axios Visuals

Arguably, the most developed country in online sports gambling is the United Kingdom, which according to data from Global Betting and Gaming Consultants, was $7.3 billion in size in 2020. A recent U.K. House of Lords analysis determined that 60% of sports gambling platform revenues come from just 5% of users. Japan is thought to be the next largest market at roughly half the size of the U.K.

Much has been made about the convergence of investing and gambling. In fact, fortunes have been made over recent years by obfuscating the distinction – see Bitcoin, GameStop, Tesla, SPACs, NFTs. With interest rates hovering just above 0.0% and a population largely shut-in their homes, investors witnessed a series of frightfully irrational waves of trading across certain stocks and digital assets. Nearly all of this activity was uncoupled from fundamental economic valuations, yet undoubtedly created the same adrenaline rush experienced when gambling.

According to Financial Industry Regulatory Authority data, at the end of February 2021 there was $814 billion of margin debt held by investors, which is an increase of 49% year-over-year, and may create significant issues should there be a swift and unexpected correction. A recent Wall Street Journal study found that 41% of all financial assets held by individual U.S. investors was now in stocks, the highest level since 1952.

One of the leading online trading platforms is Robinhood, which itself is expected to go public this spring and likely will be valued around $50 billion. So, while its stated mission is “to democratize finance for all,” the gamification of investing with digital confetti raining down after your first trade was recently removed to be more adherent to regulators’ concerns. In fact, Massachusetts recently sought to revoke Robinhood’s registration as a broker-dealer given concerns over its business practices and aggressive marketing activities. Even Warren Buffett is nervous.

Undoubtedly, online gambling (and investing) platforms have invested enormous resources to acquire, engage, activate, and incent online users – not unlike every other consumer-facing industry. The challenge here is that there is a potentially devastating downside that comes with their success. It is well-understood that compulsive gamblers are 50% more likely to commit a crime, in large measure to fuel their addictions, and that these gamblers are 7x more likely to be arrested.

Even more disturbing concerns emerge when looking at the mental health comorbidities that are associated with gambling addictions. Studies have clearly shown that these addicts suffer from much greater levels of depression, alcohol and substance abuse issues, and have an elevated risk of suicide and suicide ideation. A 2016 study in Finland showed gambling addicts had a 5% incidence of suicide and suicide ideation when compared to 0.1% for the general population. More than 88% of this cohort acknowledged “emotional harm” and 87% experienced “health harm.” Younger addicts reported significantly greater levels of financial and health issues (underscoring concerns about youth addiction associated with sports gambling and online investing platforms).

Whether on balance gambling is a positive or negative to overall societal health is a tricky debate. Undoubtedly, the level of tax revenues enjoyed by governments can be utilized for a roster of social services (ironically, some of them necessitated by issues brought on by gambling addiction). The gaming industry has created a lot of jobs and has, in some cases, created hubs of sustainable economic activity (see Las Vegas, do not look at Atlantic City).

The costs to individuals and society from gambling are relatively self-evident. Studies have shown that 10-20% of gambling addicts will eventually be bankrupted by their addiction, and many of those will go on to be homeless. Other studies have concluded that 20-30% of gambling addicts will develop alcohol and other substance use disorders, which have nearly immeasurable and direct/indirect costs to family members. Gambling addiction is expensive to treat and those afflicted will have much greater levels of lifetime debt, leading to further burdens on loved ones.

Fortunately, according to the National Center for Responsible Gaming, nearly one-third of all gambling addicts are able to treat their addictions without formal intervention. It is near-impossible to predict who those lucky ones are – kind of like whether you are going to roll boxcars or snake-eyes.

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