The wording behind prediction markets, even their name, leads many users to believe they’re not gambling but investing, three responsible-gambling advocates told an audience at Global Gaming Expo.
“If you see ‘gambling,’ in your brain that money comes from fun money that you expect you’re probably going to lose,” said Brandon Mastromartino, director of the Institute on Sports Wagering and Gaming at San Diego State University. “If you see ‘investing’ or ‘trading,’ in your brain that comes out of your savings, your financial strateg. That changes those risk perceptions. … When they’re trading, they think they’re being strategic.”
David Bergman, an associate professor at the University of Connecticut School of Business and winner of the 2020 DraftKings Fantasy Football World Championship, pointed out a key difference between stock market diversification and football betting. Someone buying stock in all the S&P 500 companies invests in economic production and the stock market’s upward performance over time. Someone who buys individual “futures” on each of the 32 NFL teams reaching the Super Bowl is guaranteed to lose money, he said.
Alex DeMarco, founder and CEO of MoneyStack, the company behind the GamFin financial -ounseling platform for people and families in financial crisis from problem gambling, said they see the “other side” of what many college students encounter after losing too much money on prediction markets. The common message offering help for problem gambling “doesn’t resonate with the college population,” he said, because they don’t think they’re gambling. “But their parents are calling us. They’re desperate.”
The three spoke Wednesday at a Global Gaming Expo panel on “Financial (Il)literacy: Risks of Framing Gambling as Investing.” Carly Johnson, director of research for the American Gaming Association (AGA), moderated their discussion.
Bergman said conflating the risks of gambling with the wisdom of investing for the future leads people to think they’re making a sophisticated financial choice when deciding whether their favorite team will win. “That’s a major problem.”
He said a recently completed UConn study, not yet published, showed a relationship between the perception of sophistication and problem gambling. “If people feel they’re super sophisticated … and they think they’ve got some great position on the market, then they use that to actually make financial decisions.”
Last week, the AGA released a study, done by University of North Carolina researchers, showing that gamblers tend to show more financial literacy than non-gamblers and that users of prediction markets are more likely to overrate their mathematical ability.
De Marco said clients seeking help are trending younger and increasingly male, from 60 percent male in previous years to 74 percent over the past year. “We’re seeing relapses,” he continued. “They may have self-excluded from legal platforms and relapsed on prediction markets.”
The impact on their lives is obvious.
“They’re not talking about KPIs and sophisticated algorithms they’re working with,” DeMarco said. “It’s the distortions they’ve developed with money. It’s the impact on their relationships with families.”
While states with legal sports betting require bettors to be at least 21 years old, the minimum age for buying and selling stocks is 18. Mastromartino said he did a study last year showing that the vast majority of sportsbook bettors learned about betting from people they knew, personal experiences in land-based sportsbooks, and traditional advertising. In contrast, the vast majority of prediction market users learned from social media and online messages. He added that the “investment” mindset can lead prediction market users to pay too little attention to their losses, because “savvy” investors understand that stock prices ebb and flow.
People think they’ll be able to recoup their money, “but at the end of the day, it’s still betting on sports, and you’re not going to come back up if the event doesn’t go the way you predicted.”
DeMarco said the major lesson he’s learned from handling sports-betting cases is that “we need to create a level playing field across the platforms.”
Emphasizing that he’s not opposed to prediction markets in general, Bergman sees a legitimate question over the use of financially sophisticated terms instead of “gambling” or “betting. False advertising is a really big problem. We regulate that, we watch it, and we make sure that people don’t do that. So why would we not do it in this case as well?
