Bankshot

Sports gambling is next hot-button issue for banks

U.S. credit card issuers are already caught in the middle of intense debates over guns, marijuana and cryptocurrencies. Gambling on sports is next.

A Supreme Court decision this week set off a race among states to legalize sports betting, which under federal law has long been banned outside of Nevada.

Numerous states, including New Jersey, Delaware, West Virginia and Mississippi, are eyeing the substantial tax revenue that stands to be collected from action-hungry fans.

Americans place at least $50 billion in illegal sports bets each year, according to an estimate last year by Eilers & Krejcik Gaming. The firm said that it expects 32 states to legalize such wagers by 2023.

Sports fans may initially be required to place their bets in person — Monmouth Park, a 148-year-old racetrack on the Jersey Shore, said Monday that it is nearing the finishing touches on an expanded gaming area, which were started in anticipation of the Supreme Court’s decision.

baseball betting
Sight on monitor with the teletext and betting offer for baseball matchups.
Sinisa Botas - stock.adobe.com

But over time, there will be substantial economic pressure to allow wagers over the internet, since the market will be far larger if bettors are able to place wagers on their mobile phones.

And once fans can make bets from the comfort of the couch, they will surely want to pay with their credit and debit cards, the fuel of e-commerce.

That looming eventuality will force banks to make tough decisions over whether, and under what circumstances, to allow gambling transactions.

“Just because something is legal doesn’t mean that it has to be allowed,” noted Elliot Berman, a risk management consultant to banks.

Legal gambling over the internet is not entirely new — online poker is currently allowed in three states — and banks have generally been reluctant to embrace it.

However, the large size of the revenue opportunity in sports gambling could change bankers’ thinking.

“I do think that there’s just going to be so much money in it that banks may find a way to get involved,” said Matt Schulz, senior industry analyst at CreditCards.com.

“I don’t think that this is going to happen tomorrow. And it may not even happen this year. But I do think that there’s reason to believe that the banks may see this as a reason to at least rethink their view on some gambling with a credit card.”

Sports gambling will present a different set of problems for card-issuing banks than guns and marijuana do.

In the case of firearms, banks are stuck in the middle of an unbridgeable political divide. Some progressive voices are calling for the industry to stop enabling gun purchases, a demand that is unacceptable on the right.

Cannabis, meanwhile, has left banks in a legal gray area. If they agree to serve the booming state-legal weed market, they risk running afoul of federal law.

The more apt comparison here is cryptocurrencies. Consumers often seek to buy bitcoin and other digital currencies on their credit cards, in what often amounts to a bet that prices will rise, allowing them to pay off their balances at the end of the month. Some of the largest U.S. credit card issuers have banned such purchases in recent months.

Gambling on sports presents a similar risk. If credit card companies dip their toes into these waters, they will need to monitor customer activity closely for signs of problem gambling.

The first concern will be about whether consumers are gambling large enough sums that it threatens their ability to make their monthly payment. When the customer has an auto loan or a mortgage at the same bank, there will be additional worries about their ability to stay current on those loans.

“Anytime you’re making it easier for folks to gamble more of their money, you’re taking on a pretty big risk,” Schulz said.

But if banks decide to ban sports gambling on their cards, they will risk alienating many good customers. They will also be ceding a substantial revenue opportunity.

The bottom line is that sports gambling just went mainstream in the U.S., and banks would be well advised to start charting their course.

Bankshot is American Banker’s column for real-time analysis of today's news.

For reprint and licensing requests for this article, click here.
Credit cards Risk management Consumer lending Marijuana banking Debit cards Mobile payments SCOTUS
MORE FROM AMERICAN BANKER