Professor Brad Humphreys of West Virginia University breaks down the explosive growth of legalized sports betting and its hidden dangers. Backed by Arnold Ventures, his research uses a rare dataset of millions of anonymized bets to study “loss chasing” — the risky behavior of placing bigger bets after a loss. This conversation covers why sports betting can’t be beaten long-term, why Gen Z wrongly treats it as investing, and what it all means for your finances.
Jeffrey Snyder, Broadcast Retirement Network
Professor Humphreys, it’s so great to see you. Thanks for joining us on the program this morning.
Brad Humphreys, PhD., West Virginia University
It’s great to be here, Jeffrey.
Jeffrey Snyder, Broadcast Retirement Network
It’s great to talk to you, and sports betting and gambling is something that we’ve covered on the network. I want to get into the research that you’re going to be conducting in partnership with Arnold Ventures. But if you permit me, Professor, I want to take a step back, because I know you’ve been studying gambling for a very long time as part of your career.
38 states currently allow online gambling. I guess that’s good from a tax revenue perspective, and it’s good for the gambling companies, but I would suspect that maybe there’s some incidental or unintended consequences of this new legislation.
Brad Humphreys, PhD., West Virginia University
Yeah, absolutely. So, I do want to just make one correction to your statement. Sure.
38 states currently allow online sports betting. Sure.
Jeffrey Snyder, Broadcast Retirement Network
Thank you.
Brad Humphreys, PhD., West Virginia University
But there are also seven states, including West Virginia, that permit online iGaming, which is casino games on a mobile device. So there’s a big distinction there about availability and what kind of gambling is going on. So yes, I mean, the legalization of sports betting has just generated an enormous change in gambling markets.
And I don’t think anybody truly saw it coming. So just to give a little bit of background on this, until 2018, there was a federal law called PASPA, the Protection of Amateur and Professional Sports, that basically said sports betting can take place in Nevada only, and it’s illegal everywhere else in the United States. What we think of as regular sports betting, like getting a bet down on a point spread or something like that.
Right? And in 2018, when there was a lawsuit, the state of New Jersey sued the federal government to overturn that law because they had casinos and they wanted sports betting. And in 2018, that case went all the way to the Supreme Court of the United States.
And the Supreme Court overturned PASPA and returned the ability to decide to regulate sports betting to the states. And that’s why 38 states, it’s now legal to bet on sports in those states. But yeah, before 2018, if you wanted to bet on a football game, you had to go to Las Vegas or Reno or somewhere in Nevada, and it just wasn’t available.
So to go from that environment to being able to bet on anything you want on your phone is just an enormous change to consumers, but also to state governments, because it is taxed. And there’s a tremendous amount of money that’s bet on sports and states are in tax revenues for that. And that’s a voluntary tax because nobody has to bet on sports.
Like you might have to buy a quart of milk and pay taxes on that.
Jeffrey Snyder, Broadcast Retirement Network
Well, thank you for that correction. I appreciate that, Professor. Let me follow up on something you said, that there were seven states that allowed online gambling.
So those would be, I guess, virtual slot machines, virtual poker, virtual gaming.
Brad Humphreys, PhD., West Virginia University
There also could, some places offer actual live table games like blackjack that you could play on your phone. But in matter of fact, 90 percent of it is virtual slot machines.
Jeffrey Snyder, Broadcast Retirement Network
So thank you. See, this is why you’re the professor and I’m like the student. So I appreciate that.
Let me ask you about the impact, because I want to get into your research now. If you know, you’re not always going to win a bet, I would say that you’re probably more likely to lose a bet, whether it’s a sports bet or gambling, than you are to win. And that has severe consequences for maybe your students’ finances, but also the finances of the general population, not only in West Virginia, but in the remaining 50 states, 49.
Brad Humphreys, PhD., West Virginia University
49, exactly. Yeah. So, I mean, it is certainly possible and it is the case that some people unfortunately ruin their financial lives and ruin their family’s lives and their friends and loved ones lives by behaving irresponsibly in these markets.
And because of the immediacy and ease of access of betting on anything these days, that can happen quickly. I mean, you there’s no there’s no real limit on how much you can bet or how frequently you can bet. And you know, some of the sports bets that occur now are in game.
I mean, people can get a bet down in watching a baseball game on whether the next pitch is going to be a ball or a strike. And that gives you the opportunity, gives people the opportunity to bet hundreds of times in a very short amount of time.
Jeffrey Snyder, Broadcast Retirement Network
I would I would assume if we got into the psychological or neurological aspects of betting, probably something to do with the serotonin and the and the, you know, the the hormones that are secreted, if that’s the correct terminology. Let me ask you something I read recently and I want to ask you before and then I do want to get to your research, because I think it’s important about how you’re going to do it, what you’re going to be looking at. But I saw that Gen Z, I don’t know who performed the research, but it was a study that Gen Z views betting and gambling as a long term investment strategy.
So are we not doing something right in the retirement industry, in the financial services industry, in schooling to explain some of the challenges of this type of entertainment?
Brad Humphreys, PhD., West Virginia University
Yes. Yes, that’s a failure of the overall educational system to not better educate people in how sports betting and gambling markets operate, because it’s the average bet on a sporting event and certainly the average bet on a slot machine has negative expected value. I mean, you’re it’s sports betting markets are incredibly informationally efficient.
That means that the prices that the bookmakers and what it means in practical terms is the point spread in the NFL game is the best possible prediction of the actual number of difference in number of points scored in that game. And that means, you know, you can’t beat the market in the long run betting on sports. It’s just not it’s not like the stock market.
It has many similar characteristics to securities. Right. It’s you have an uncertain payoff.
You have a price that you pay. And but at some point when you sell that stock or that bond, the payoff is going to be resolved. That’s a bet on a sporting event looks like that.
But you can make money. You can make money in the long run by engaging in buy and hold investing behavior in securities. Right.
It’s the markets are so informationally efficient that it’s really, really difficult. I’m not saying it never happens, but it’s really, really difficult. If you’re going to bet on sports in the long run, that you will earn a positive return on that.
And that that’s that’s evidence based. I’m not just making that up.
Jeffrey Snyder, Broadcast Retirement Network
So let’s shift to the researcher. Part of the reason why I reached out is I think loss chasing seems very interesting to me. Why don’t you start as we define the research you’re going to be doing in partnership with Arnold Ventures.
What what exactly is loss chasing? Just so we can explain that to the audience and myself.
Brad Humphreys, PhD., West Virginia University
Yeah, I think that’s important. And I do want to point out that Arnold Ventures is is funding this research, but it’s me that’s going to carry out the research and my colleagues here at West Virginia. Yes.
So loss chasing is is an outcome where a gambler experiences some sort of loss, which would be unusual relative to any other bet that they might place. And it’s unusual because that loss triggers subsequent behavior, which is irresponsible. Right.
So it means that this these loss chasing is you for some reason, economically, physiologically, I don’t know, that loss changes you. And though in the next bets that are made are either more frequent or larger bets or more risky bets than bets in the past. And so there’s a psychological literature trying to identify disordered or problem gambling behavior.
And the only real gambling market outcome that’s part of that definition of irresponsible gambling is loss chasing. I mean, so by definition, if you’re really loss chasing, then you are engaging in disordered behavior and and you are more likely to do substantial financial harm to yourself and your family.
Jeffrey Snyder, Broadcast Retirement Network
So with that definition in mind, let’s talk about your research. And thanks again for you are just educating me in the audience. And thanks for that distinction about your team doing the research.
But in terms of the research itself, how long does it take? What’s the sample size? And how would if you could, if you wouldn’t mind getting some broad strokes, how will you go about doing this research?
Brad Humphreys, PhD., West Virginia University
Yeah, absolutely. So I have I have access to a very large data set on the behavior of online gamblers in West Virginia. In fact, there’s a state law that requires all of the legal online operators to provide full transactions data to me at West Virginia University for research purposes.
And that is a really rich environment for doing research like like looking for evidence of loss chasing. We know it happens. But so the question is, in this observational transactions level data, can we really identify a loss that would be significant enough to generate subsequent loss chasing?
And B, can we actually develop evidence that that that exists? Because, you know, loss chasing as a theoretical concept, it makes a lot of sense, right, that you’re trying to get back ahead because this one loss that you experienced really left a mark. But, you know, I’m an economist and developing evidence that that actually occurs is is important because we just can’t assume that loss chasing exists.
We need to we need to demonstrate with careful research that it that it is going on. So that’s I mean, in a nutshell, in a broad stroke, that’s the research I’m going to do is that can we find a loss that would be substantial enough to generate loss chasing? And can we then observe people that experience one of those losses and then go on and chase those losses by betting more or betting more frequently or making riskier bets?
Jeffrey Snyder, Broadcast Retirement Network
Professor, is the hope from this research to inform gambling enterprises, governments, maybe even professionals, I’m thinking therapists, on how to identify and possibly, you know, it exists. So is there a way to look at the profile of these people so that you can identify them sooner? And I’m not I’m not saying protect themselves, but, you know, you shouldn’t have to protect somebody else, but at least identify them because they should know if they’re predisposed to this behavior.
Right.
Brad Humphreys, PhD., West Virginia University
Absolutely. Absolutely. And it could.
And the thing is, these shocks that generate loss chasing, it could happen to anybody. Right. But so, yes, the research is intended to inform all of those sort of things that you listed as part of as part of this research project.
I work closely with the West Virginia Lottery Commission, which is the regulator of gambling in the state of West Virginia, and they are able to, you know, they regulate gambling. They can make changes and require the operators to make changes to how they do business. And I also think, you know, I deal with the with the operators quite a bit.
And I think they are cognizant of and have are making good faith efforts to make sure that people don’t undergo these harms. So, yeah, I mean, so the idea is, can my research identify loss chasing events or events that will cause loss chasing behavior? And I’ve got this observational data.
So let me be clear about my data set. I transactions level data means that if you have a online mobile sports betting account in West Virginia, I know every bet you make and I know when you make and I know how much you bet and I know what you bet on and I know what the event was you were you were betting and the outcome of that bet. Now, I can’t identify individuals.
I just have like an anonymized individual identifier that lets me observe the betting behavior of the same individuals over time. But I mean, it’s we’re talking about millions of bets on sporting events in a month in the state of West Virginia. And I have that I will have that over quite some period of time.
So that’s the just in the perfect environment to look for evidence that this loss chasing behavior actually exists.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. And though it’s not I’m sorry to interrupt. I was going to say, though, it’s anonymous.
You have the ability to create a pro or someone can take that information, create a profile and then take it to the next step, right? Yes. And go ahead.
Brad Humphreys, PhD., West Virginia University
Absolutely. Because, I mean, my research proposal is that these these loss chasing triggers are actually observable in this transactions level data. And I can tell you, I don’t know how deep we want to get into the details of sports betting, but my research design focuses on what the literature calls near miss parlay losses.
So I don’t know. A parlay bet is a bet on a sporting event that that depends on sporting events where more than one thing has to happen for that bet to pay off. So you could place a parlay bet would be something like, I’m going to I’m going to make a bet that the Dallas Cowboys are going to cover the point spread in their next game and the Cowboys will score more than 40 points in that game and that the Cowboys defense will hold their opponent to under two touchdowns.
So you make that bet and every one of those things has to happen for you to win that bet. And these parlay bets, and when you look at the data, that’s by far the most popular form of sports betting in our current environment, the 85 to 90 percent of all bets that are placed in West Virginia are these parlay bets. Right.
So I’m proposing to look at this outcome where, let’s say you call each of those separate events in a parlay bet a leg. And I’m looking at cases where, say, somebody placed a five leg parlay bet and four of those legs occurred. They won, but the fifth leg lost.
And that’s so that’s a near miss. And my idea is that that is a loss that would be significant enough to trigger subsequent irresponsible behavior.
Jeffrey Snyder, Broadcast Retirement Network
But please go ahead. Now, I was going to I’ll let you finish. I just I’ve got about a minute and a half left.
Let me let me allow you to finish. But I also want to posit one last question. Are there national you keep on talking, but you kept on talking about the data set within West Virginia.
But but aren’t people people and when this have national implications, I mean, couldn’t the state of Virginia or Commonwealth of Virginia or my state of Maryland or my new state of North Carolina learn from this data set? I mean, it seems to me to be so instructive.
Brad Humphreys, PhD., West Virginia University
There there is nothing inherently different about West Virginians who bet on sports that would make them systematically different from anybody anywhere else in the country, except maybe Nevada, because there’s no online sports betting in Nevada, but there’s lots of casinos you can bet. Right. Yeah.
But yeah, anywhere else. Maryland, Virginia, California, where it’s not legal to bet on sports. But yeah, I think the results will generalize to lots of other settings.
It’s just that they don’t have the data in those states. And this is pretty unique. I’m West Virginia and my research center is basically the only research center that has access to these data and is actively working on this sort of research.
Jeffrey Snyder, Broadcast Retirement Network
Well, you may get some phone calls as a result of your national the reach of your of all the articles that I’ve read about the research. And maybe people will check out our show and you may get a lot of phone calls and email. So I hope that’s the case for you.
And I hope more people learn about some of the challenges that this creates. Professor, we’re going to have to leave it there. I hope you’ll come back once you conclude the research and you can share some of the results.
We look forward to having you back again very soon. Thanks so much for joining us this morning.
Brad Humphreys, PhD., West Virginia University
Thanks, Jeffrey. I’d be delighted to come back.
