Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4903302
Abstract:
Following a 2018 ruling of the U.S. Supreme Court, 38 states have legalized sports gambling. We study how this policy has impacted consumer financial health using a large and comprehensive dataset on consumer financial outcomes. We use data from the University of California Consumer Credit Panel, containing credit rating agency data for a representative sample of roughly 7 million U.S. consumers. We exploit the staggered rollout of legal sports betting across U.S. states and evaluate two treatment effects: the presence of any legal sports betting in a state and the specific presence of online or mobile access to betting. Our main finding is that overall consumers' financial health is modestly deteriorating as the average credit score in states that legalize sports gambling decreases by roughly 0.3%. The decline in credit score is associated with changes in indicators of excessive debt. We find a substantial increase in average bankruptcy rates, debt sent to collections, use of debt consolidation loans, and auto loan delinquencies. We also find that financial institutions respond to the reduced creditworthiness of consumers by restricting access to credit. These results are substantially stronger for states that allow online sports gambling compared to states that restrict access to in-person betting. Together, these results indicate that the ease of access to sports gambling is harming consumer financial health by increasing their level of debt.
Commentary: From Casino Floors to Courtrooms
Bankruptcy attorneys have long seen gambling debts as a guaranteed bet for financial ruin—often a moral failing and then a line item in the Statement of Financial Affairs to be sheepishly acknowledged and hopefully quickly forgiven. But the world of gambling has changed faster than the Bankruptcy Code’s assumptions.
Gone are the days when compulsive gamblers had to drive hours to Atlantic City or Las Vegas. Today, the casino lives on the phone—always open, algorithmically tuned, and cross-promoted during every football game. And as this study shows, once gambling becomes as accessible as checking Instagram, it starts showing up in credit reports—and in bankruptcy filings.
Bankruptcy courts have historically taken a dim view of gambling losses, often equating them with “bad faith” or dismissing them as “self-inflicted wounds.” That moral lens made sense when gambling required planning and travel. But today’s “disordered gambling” is less vice than vulnerability—an addiction intensified by tech platforms designed to maximize engagement, just as social-media apps do. Judges and trustees may soon need to rethink the reflexive skepticism toward debtors whose credit cards, payday loans, or even mortgages collapsed under the weight of DraftKings, FanDuel, or BetMGM.
Policy Recommendations: From Punishment to Protection
Congress and state legislatures could help mitigate the harm in several ways:
Bankruptcy Reform for Disordered Gambling – Amend §523(a)(2)(C) to clarify that gambling-related credit card advances are not per se presumptively nondischargeable, especially when incurred in the context of documented gambling disorder. This is especially true as the credit card lenders that make on-line gambling possible are hardly innocent naifs, but actually actively promoting this behavior.
Mandatory Gambling Self-Exclusion in Credit Underwriting – Require financial institutions and credit bureaus to allow consumers to flag gambling transactions or block gaming-related merchant codes, similar to existing “voluntary credit freeze” mechanisms.
Tax Revenue Earmarks – Dedicate a fixed percentage of sports-betting tax revenue to fund state treatment programs for gambling addiction and financial counseling. (Currently, many states allocate less than 1% of gaming taxes to addiction services.)
CFPB Oversight – Direct the Consumer Financial Protection Bureau to study predatory lending practices tied to gambling losses, including the use of debt consolidation or cash-advance products marketed to problem gamblers. Maybe in 2029?
Identifying and Helping Clients:
For Attorneys:
Consumer bankruptcy lawyers can expect to see more clients whose budgets crumble from gambling losses—but few will volunteer that information. Warning signs include:
- Unexplained cash withdrawals or “Venmo”-style transfers with sports-related notations.\
- Frequent small transactions on debit/credit statements at odd hours.
- Missing paychecks or “mystery loans” from family or friends.
- Obsessive secrecy or shame around finances, often cloaked as “bad investing.”
Gentle inquiry helps. Ask, “Do you use any betting apps or online gaming platforms?” rather than “Do you gamble?” The former sounds like routine intake; the latter sounds like judgment.
For Existing Clients:
Offer confidential referrals and normalize treatment as part of financial recovery—just as you would refer for credit counseling or mental-health care. Bankruptcy can be positioned not as failure but as the financial detox necessary to reclaim stability before relationships, housing, or hope are lost.
Resources for Clients:
Attorneys can provide these evidence-based and anonymous resources:
- National Council on Problem Gambling (NCPG): www.ncpgambling.org
- 24-hour helpline (1-800-522-4700) with chat and text support.
- Gamblers Anonymous: www.gamblersanonymous.org
- peer-support meetings nationwide and online.
- NC Problem Gambling Program: morethanagame.nc.gov
- free treatment and counseling for North Carolina residents.
- National Suicide Prevention Lifeline: 988 — critical if gambling losses have triggered despair or suicidal thoughts.
Final Thoughts
As gambling becomes as easy as scrolling a phone, the line between “sports fan” and “debtor” is blurring. This isn’t the old Vegas high-roller—it’s the Uber driver in Greensboro betting $10 parlays during lunch. Bankruptcy courts will increasingly see these debtors not as moral failures but as casualties of a legalized, algorithmic addiction.
If the law’s purpose is a “fresh start,” it must evolve to recognize that some losses come not from vice, but from design.
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