Sports Betting Across Borders: Spatial Spillovers, Credit Distress, and Fiscal Externalities

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

Abstract

Since the 2018 Murphy v. NCAA decision, 38 states have legalized mobile sports betting. We study effects on betting and consumer credit, emphasizing spatial spillovers across state lines. Using consumer spending data and an extended two-way fixed effects framework that separately identifies direct and spillover effects, we find that legalization increases total sportsbook spending roughly tenfold and take-up by 3.1 percentage points. Counties in non-legal states within 15 miles of a legal state experience spillover spending equal to roughly 14 percent of the direct effect, with these spillovers declining to roughly zero by 60 miles. Using the New York Fed Consumer Credit Panel, we find that median credit scores decline by roughly 1 point and overall delinquency rises 0.3 percentage points from a 10.7 percent base, with spillover delinquency rising nearly 0.2 percentage points. Among those under 40, auto loan delinquency increases by 0.55 percentage points and credit card delinquency by 1.02 percentage points, driving the overall increase in delinquency. Spillover delinquency effects for this age group are of the same order of magnitude as the direct effects, consistent with a selection effect in which the bettors willing to incur travel costs to access legal markets are also those who bet most intensively and bear the greatest financial consequences. Scaling the population-level delinquency effect by take-up yields implied delinquency increases of roughly 10 percentage points among induced bettors.

We conclude with a policy simulation which reveals that spillovers create a fiscal asymmetry: states that have not legalized bear costs from cross-border betting without capturing tax revenue, giving each state an incentive to legalize even when aggregate social costs may exceed tax revenues in isolation. States with greater spillover exposure face the strongest fiscal case for legalization, as much of the betting-related financial distress is already occurring. This incentive is increasing in states that have higher pre-legalization betting activity, population centers near legal states, and a younger population. Methodologically, we show that ignoring spatial spillovers can contribute to attenuated estimates of up to 6 percent and an under-count of the affected population, a concern that extends to other staggered adoption designs where state policies generate cross-border externalities.

Author

• Jacob Goss, University of Wisconsin-Madison
  Presenting Author