Topline
Booming prediction markets and sports gambling products are creating new credit risks for Americans, according to Bank of America, which warned about particularly high impacts on young men and low-income lenders.
Key Facts
A note from Bank of America Global Research identified, “easy access and gamified interfaces” as factors encouraging frequent and impulsive wagers, “which can lead to overextension of credit and rising loan defaults.”
The note characterized the boom of prediction and betting markets as a “convergence of entertainment and speculative finance,” saying it indicates risks that could impact consumers’ credit qualities, raise delinquencies and affect earnings for issuers and subprime lenders.
Credit scores fall by an average of 2.75 points when online and mobile phone sports gambling is available, according to Bank of America, which noted low-income consumers and young men are particularly susceptible to the gambling credit risks.
Subprime borrowers have a higher potential for revolving debt spikes, accelerated defaults and higher charge-off rates, the note said.
Young men, especially those in low-income areas, “could exhibit limited financial literacy and constrained liquidity making them highly susceptible to compulsive wagering and credit stress,” the note said, adding promotional incentives and social media marketing of gambling sites could increase participation and result in heightened credit balances.
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Big Number
$99 billion. That is how much money worth of legal wagers were placed in the first eight months of this year, according to the American Gaming Association, a 12.4% increase year-over-year.
