Online Sports Betting or Online Poverty Trap? Impacts on Children’s Human Capital

• In Event: The Spread: Sports Betting Legalization Spillovers Into Financial, Health, and Education Outcomes

Abstract

This paper studies whether state legalization of online sports betting changes children’s human capital outcomes and how effects vary with household financial strain. Using 2016–2023 National Survey of Children’s Health linked to the timing of state adoption, we estimate two-way fixed-effects difference-in-differences models and corroborate with staggered event studies, with state and year fixed effects. We highlight a measure of financial instability that asks how often since birth the family difficulty had covering basics such as food or housing, which is central for lower income households.  Based on the classic CRRA utility theory, we model the consumption stream as a geometric Brownian motion (GBM) (Svetlana & Sergei, 2010). Here, money discount factors for gains and losses depend on the agent's current baseline consumption level. Relatively richer agents discount future gains less than poorer agents, while poorer agents discount future losses less than rich agents, with negative discounting potentially observed in the near future. This theoretical framework explains why impoverished households become immersed in seemingly irrational gambling rather than persisting with long-term human capital investments like education and work. The high discounting of future gains makes long-term returns from education appear less valuable, while the intense focus on imminent losses creates pressure for immediate liquidity. The same mechanism clarifies why poor families excessively use credit cards and purchase paycheck loans. They are willing to bear high costs for immediate funds to mitigate pressing financial pressures, as their decision-making is disproportionately influenced by the acute discomfort of near-term losses rather than strategic long-term planning. Overall, online sports betting modestly reduces chronic absenteeism by 0.7 percentage points, but effects are heterogeneous. In households with any tobacco use, absenteeism rises by 1.0 pp after legalization. Where people smoke inside, volunteering increases by 2.6 pp while teen work for pay falls by 4.9 pp. For financially strained families, low engagement declines by 1.1 pp and teen work falls by 2.3 pp, while absenteeism rises by 1.5 pp. Results differ by income. At or below the poverty line, legalization is followed by higher absenteeism in tobacco homes by 3.1 pp, more grade repetition where smoking occurs inside by 7.9 pp and less teen work by 8.1 pp, and higher low engagement for financially strained families by 2.1 pp. For 100–199 percent of the federal poverty line, absenteeism falls on average by 1.7 pp but this is offset in financially strained and tobacco homes by 1.6 pp and 1.5 pp respectively. For 200–399 percent, absenteeism falls by 0.7 pp on average, low engagement falls further by 2.7 pp in caregiver substance problem homes and by 2.4 pp in financially strained homes, yet absenteeism rises by 1.3 pp for financially strained homes. For 400 percent or more, grade repetition falls by 6.5 pp where smoking occurs inside, but rises by 2.6 pp for financially strained homes, and teen work falls by 4.2 pp for financially strained teens. Event studies show flat pre-trends and only short-lived movements, supporting the design.

Author

• Archi Arnob, University of Kansas
  Presenting Author