Gambling, Gaming, and Investment

For fans, not only have their favorite teams been off the courts and fields, but sports betting has also been canceled. So what are athletically-minded gamblers to do? It turns out playing the stock market might be the answer.

COVID-19 has had the most significant impact on global sporting events since WWII—it’s so substantial that there’s an entire, extensive, Wikipedia page about it.[1] It’s also ESPN’s worst nightmare: nearly all sporting events have been cancelled, and for a network that’s not used to relying on reruns, it means that they’ve scrambled for content and we’re now watching marble racing (yes, I said marbles).[2] For fans, not only have their favorite teams been off the courts, fields, and tracks, but sports betting has also been canceled. So what are athletically-minded gamblers to do? It turns out that playing the stock market might be the answer. It’s not a particularly surprising pivot; investment and betting have many shared qualities, as short-term gains and losses, and the associated emotional rollercoasters are hallmarks of both hobbies.

However, a surge of new investors who are quite literally gambling on the stock market is having a real impact on market volatility. Charles Schwab, ETrade, and Interactive Brokers together added an astounding 780,000 new customers in either March or April according to the Financial Times.[3] Looking to the future, it’s important to note that not only could this instability have a lasting effect on investor confidence, but those who will be hardest hit by these fluctuations will be people who don’t have a plan B, like as the intergenerational wealth of their more financially secure counterparts. Some clients may be interested in more stable investments for the time being, while others may be looking to try their hand at this new venture, and advisors should be ready to talk to clients on both ends of this spectrum.

In addition to sports bettors, young people are starting to take a more significant interest in the stock market via apps like the popular trading app Robinhood. This too is almost a type of gambling as Robinhood users are investing in volatile stocks, which some speculate is because Millennials are moving from video games to the stock market. For those not in the know, gambling and gaming have become more closely related than ever in recent years through the introduction of elements like lootboxes, purchasable game content containing a mystery prize that can be highly valuable or completely undesirable, and microtransactions, a common tactic used to drive revenue in free-to-play games by offering specific, low-cost in-game items for purchase. Gamers, researchers, and government officials all worry that these features introduce dangerous behaviors to young, vulnerable audiences (including children, not just young adults), and have fought to legally classify them as gambling.[4]

But what does that have to do with investing? Well, Robinhood appeals particularly to young people (their average user age is 33 and they gained 3 million new users in the first four months of the year) and trades conducted on their platform can resemble both lootboxes and microtransactions. No trading fees and a low buy-in cost allow users to buy a fraction of a stock, which can make investment more accessible to an audience of varying socioeconomic backgrounds, but these micro-trades (often of high-risk options) add up quickly and gains aren’t guaranteed. Some professionals like Timothy Welsh, president and CEO of Nexis Strategy, and high school financial literacy teacher Jacqueline Prester, argue that apps like Robinhood that gamify investment can be specifically designed to excite a similar psychological response as gaming and gambling, reinforce these behaviors, and have negative consequences for younger audiences. "Once you complete a trade . . . They flash confetti. It's almost like a video game when you get to the next level. It's all playing on the endorphins you get from making trades.” Welsh explained in an interview with NPR published earlier this month. "It can be addictive and it can be akin to gambling,” Prester agreed.[5]

Not only that, but young people may be accustomed to video games that allows them to feel the same thrills without any real danger, as losing has little to no practical consequences. Unlike a video game, investment decisions can carry significant risk and can carry long-term, and sometimes negative, consequences for investors in the real world. An analysis by Alphacution for The New York Times found that Robinhood users “bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size,” and that “in the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers”.[6] Studies show that when frequency of trading increases for small investors, ROI correspondingly decreases, and similar to gambling, apps like Robinhood bring more vulnerable populations into a very high-risk pool they may not have otherwise entered.[7] The results of these uncertain decisions can have devastating results, as evidenced by the tragic death of 20-year-old Alex Kearns last month. When it comes to betting on the market, some gamblers are well aware of the risks they take on, while others, especially new, young investors, may not be. By keeping these perspectives in mind, advisors can help both audiences navigate these uncertain times in a way that they find satisfying, while also keeping their financial wellbeing intact.








These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

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