Sports Betting Proliferation Problematic for Sub-Prime Lenders, Says BofA

• Prediction markets, sports betting boom could be trouble for some lenders
• Bank of America sees potential stress for sub-prime and student loan lenders
• Young men in low-income areas seen as particularly vulnerable

The rapid expansion of sports betting in the US and the all-state access of prediction markets could be a drag on bettors’ personal finances while potentially weighing on shares of lenders that focus on lower income borrowers.

That’s the take of Bank of America Securities analysts who in a Friday report said mobile sports wagering and the increasingly gamified prediction markets applications could compel some bettors to take on more debt. As those borrowers’ liabilities increase, so do the chances of missed payments and delinquencies that stoke tumbling credit scores. Obviously, that’s bad news for borrowers. It could be a drag on shares of financial services firms extending credit to problem bettors.

Some studies refute the notion that expanded regulated sports betting is driving increased bankruptcy filings and declining credit scores, but others claim consumers in states where online sports wagering is legal have lower credit scores and file for bankruptcy at higher rates than their counterparts in states where internet sports betting isn’t permitted.

Young Men Vulnerable, Says BofA

Bank of America reiterated a common refrain: young men are particularly vulnerable to expanded sports betting offerings.

The negative financial impacts of sports betting are more pronounced for young men, especially in low-income areas,” said the analysts.

They added that gaming companies’ promotional incentives and social media intensity coupled with bettors’ limited financial education make for a toxic brew of financial risk. Not only is that recipe dangerous for bettors, but it could risky for the financial services firms extending credit to those folks.

“Firms like Bread Financial, Upstart, and OneMain already see above-average delinquencies, and analysts are tracking whether mobile betting will push those numbers even higher. That could mean tighter lending standards or tweaks to loan pricing as lenders work to manage extra risk,” according to Finimize.

Student Loan Lenders at Risk, Too

Bank of America also highlighted student loan lenders Navient Corp. (NASDAQ: NAVI) and Sallie Mae (NASDAQ: SLM) as among the other creditors that could be pinched should a spate of betting-related delinquencies and defaults materialize.

As it relates to those two stocks, both of which are up today, Bank of America’s thesis centers around increased financial stress, in which betting plays a part, faced by current college students and recent graduates.

As of the end of the second quarter, 10.2% of US student loans were 90 or more days past due, according to the New York Federal Reserve, but it’s not clear what role prediction markets and sports betting are playing in those missed payments.