NerdWallet's Smart Money Podcast - Rolling the Dice: Can Sports Betting Really Pay Off Like the Stock Market?

Starting point is 00:00:00 Welcome to NerdWallet's Smart Money Podcast. I'm Tess Vigeland in for Sean Piles. And I'm Anna Helhosky. And this is our weekly money news roundup where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic, then leave you with the latest money headlines. Today, Ana, I got $2 here that says we're talking about the wide world of sports betting. You know, I'm not going to take that bet because you're correct. You know, Tess, just six years ago, sports betting was illegal at the federal level. Although, let's be real, that type of betting was still going on. But in 2018,

Starting point is 00:00:40 the Supreme Court struck down the federal ban and left it to the states. Now, if you live in one of the 38 states plus Washington, D.C. and Puerto Rico, you can legally bet on sports. And in 30 of those states, you can place those bets from the comfort of, well, anywhere. Yeah, sports betting is really on the rise. Goldman Sachs research found that U.S. sports betting has grown into a $10 billion a year industry. And its forecasts show that it could grow to a $10 billion a year industry, and its forecasts show that it could grow to a $45 billion a year industry. And in the stock market, prices of sports betting companies are rising too. For example, shares of the company DraftKings has more than doubled in price since the company went public in 2020. But, and we knew there was a but here, putting your

Starting point is 00:01:22 money into a sports betting company is a bit different than sports betting itself. Today, we're going to dig into the differences between a sports betting habit and an investing habit. Before we introduce our guest, Tess, I want to double down on what I mentioned earlier. I see what you did there. There are several states where sports betting is still illegal. And in some of the places where it is legal, the laws are complicated. Some states don't necessarily allow mobile sports betting while others are okay with apps, but won't allow sports betting retailers. So if you are considering investing nerd Sam Taub to walk us through the wide world of sports betting. Sam, great to have you back as always. Great to be back. Now let's start with some of the basics here. What is the difference between betting and investing your money in terms of returns? When I talked to advisors about this, they noted that the big difference is not necessarily whether you can

Starting point is 00:02:26 make a big profit. Some people do get lucky on sports betting and win a big score once or twice, but consistency of returns is really something that separates investing from gambling activities like sports betting. The average annual return of the S&P 500 index is about 10% per year before inflation. That might not sound like much, but that's about 159% per decade. It's really difficult to maintain that kind of performance for a period of years with any kind of betting. You wrote in your article that there's another big difference between sports betting and investing. More people know about sports than the stock market. Absolutely. I think if you went out on the street and quizzed random people,

Starting point is 00:03:11 I'm very confident more people would know who won the Super Bowl last year than whether the S&P 500 went up or down last year. Sports are embedded in our pop culture, and investing just isn't. So say you're someone who knows a lot about sports, and you decide to download an app and place a bet. What are some of the hazards involved there? There's a growing body of research coming out that these things can be addictive. We've known for a long time that gambling addiction is a specific condition, and the behavior of some sports bettors is starting to look a lot time that gambling addiction is a specific condition and the behavior of some

Starting point is 00:03:46 sports bettors is starting to look a lot like that. And how does that then compare to the inherent risk of investing? If we're talking about addiction, that's just not much of a risk if you're buying and holding index funds and checking on them once or twice a year. It doesn't provide enough of an activity, enough dopamine to really fuel an addiction. Having said that, I actually think you can draw an analogy between sports betting and the addictive potential of certain types of short-term speculation. People can get sucked into day trading meme stocks or crypto or whatever in a way that looks a lot like a sports betting addiction. One advisor I spoke to, Frank Paré, made a very good point about this, which is that

Starting point is 00:04:33 it's perfectly natural for certain people, and in particular financially stressed people, to chase after this kind of get-rich-quick thing. If you're in a situation where you need money fast, you might not be thinking straight because of the financial pressure you're under, and you're going to be more susceptible to this kind of addiction. It's worth pointing out that, like many addictions, it's not necessarily a moral failing. Some people get pushed toward this kind of thing by socioeconomic factors. Now, with any kind of gambling, there's little certainty that you'll come out the other side richer. Is there a way to bet on sports in a way that's financially responsible?

Starting point is 00:05:15 The financial advisors I discussed this topic with gave me two very good ideas on how to set some responsible guardrails on sports betting if that's something you're interested in. Frank Paré, who I mentioned before, suggested limiting your betting to very special occasions because there's a big difference between making a friendly wager on the Super Bowl and habitually betting on every regular season football game. Another financial planner I spoke to about this, Chris Woods, gave a pretty common piece of advice for any kind of recreational gambling, which is to treat the money you're betting like it's already gone. Treat it like an expense. So like any discretionary spending, is it a good idea to budget for your betting habit?

Starting point is 00:06:03 Absolutely. Woods said exactly that. Treat it like having idea to budget for your betting habit? Absolutely. Woods said exactly that. Treat it like having a monthly budget for going to the movies or to concerts. If you feel like you have a handle on your betting behavior, which again, not everyone does, but if this is really under your control and you're able to moderate it, a financial advisor can be a good resource for figuring out how much you can reasonably budget for these kinds of entertainment expenses. Well, we'd be remiss if we didn't mention where people who are struggling can get help. If anyone is struggling with such an addiction, they can contact the National Problem Gambling

Starting point is 00:06:39 Helpline that's run by the National Council on Problem Gambling. We'll add a link to their website as well as contact info for the helpline and the council's text messaging service in today's show notes. And you can always get more info on the ins and outs of investing at nerdwallet.com or just search NerdWallet Investing. Sam, thanks so much for coming on the show. Of course, always glad to be here. Up next, a few money headlines from the last few days. Well, Anna, we're heading into the silly spending and shopping season. Oh, nice alliteration. Thank you.

Starting point is 00:07:21 It's the holiday opening of the wallets. And it's already starting. Although you could argue it really hasn't stopped since the end of the pandemic. We've been collectively doing quite a lot of shopping since we were allowed to, you know, leave our homes. But anyway, all to highlight that last week, the Census Bureau reported that retail sales rose 0.4% last month. And that's even with higher prices from inflation. Meantime, the National Retail Federation is forecasting that those holiday sales we just mentioned will be up 2.5 to 3.5% over last winter.

Starting point is 00:07:50 That adds up to somewhere between $979 and $989 billion in total holiday spending in November and December. That's a lot of gift wrap and sweaters and tinsel, Anna. And no surprise here, the NAR expects online sales to rise up to 9% over last year. Cyber Monday is only six weeks away, people. Hope you have your budget ready. And NerdWallet has an article with links to four free budgeting templates and spreadsheets in case you need help making that budget. We'll link to that also in today's show notes or just search online for NerdWallet free budgeting templates. You know, Anna, one item that will often go on sale

Starting point is 00:08:32 around the holidays is subscriptions. You know, everything from streaming services to gym memberships and beyond. You'll see an offer of maybe a free trial for a few days or weeks and well, then you start paying. And then it's like the Hotel California. You can check out any time you like, but you can never leave. That's going to be in my head all day now. Thank you very much. But sometimes it's really, really difficult to figure out how to drop a membership. Certain retailers will make it very difficult to do so. Well, the Federal Trade Commission is on the case. It issued new rules

Starting point is 00:09:05 making it easier for consumers to end subscriptions and memberships and the automatic payments that usually come with them. That's right. It's called click to cancel. And the FTC says these rules should make it as easy to cancel those subscriptions as it is to sign up for them. Businesses will also have to get your consent before converting a free trial to something you have to pay for, as well as before charging you for a renewal. Companies also won't be able to force you to use a chatbot or have contact with a customer service agent in order to cancel, you know, the ones that keep you on the phone offering discounts and telling you how awesome the product is before finally letting you go several hours later. I exaggerate, but honestly. The rules are set to go into effect in six months.

Starting point is 00:09:50 And finally, Tess, another development in the ongoing kerfuffle over a student loan servicing company known as MOHELA. That's the Missouri Higher Education Loan Authority, and it's one of the country's biggest federal student loan processors. Yeah, the Washington Post reports that the Department of Education will stop sending new student loan accounts to the company, at least for now, because Mojila didn't process some 460,000 applications that could have put students into money-saving repayment plans. Oof. Some listeners may remember that Mojila was also penalized about a year ago because it caused some students to be late on their payments because it failed to process

Starting point is 00:10:29 their billing statements on time. The education department has given the company 10 business days to say how it's going to correct these most recent issues. And that's it for this week's Money News. We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD or send us a voice memo at podcast at nerdwallet.com. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeart Radio to automatically download new episodes. Today's episode was produced by Tess Figlan and myself and edited by Rick VanderKneife. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes

Starting point is 00:11:16 and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.

NerdWallet's Smart Money Podcast - Rolling the Dice: Can Sports Betting Really Pay Off Like the Stock Market?

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