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A few months ago, I encouraged Missourians to vote against Amendment 2 [ [link removed] ] on the basis that online sports gambling is dangerous.
The pro-gambling funders—namely DraftKings and FanDuel—spent $34 million more [ [link removed] ] than the opposition, and the amendment passed with a 0.1% margin [ [link removed] ].
Nonetheless, mobile sports gambling remains a huge problem. So last week, when Robinhood [ [link removed] ] said that it would allow sports gambling through its app [ [link removed] ], that piqued my interest.
Platforms like Robinhood are making investing more like gambling, peddling what amount to get-rich-quick schemes. People are saving less and becoming gambling addicts [ [link removed] ]. And by turning all of it into a game, people are ruining their lives.
A reminder: mobile sports gambling is very bad
A majority of states have legalized mobile sports gambling [ [link removed] ] since a Supreme Court ruling in 2018 gave them the right to do so [ [link removed] ].
When states legalize online sports gambling, per-person gambling spend increases by more than 6× [ [link removed] ]. But even beyond that, what we’re seeing in those states is consistently frightening [ [link removed] ]:
Gambling addiction is up [ [link removed] ], potentially by as much as 30%. Gambling addiction—and frighteningly, this is not an exaggeration—engages the brain in much the same way that a heroin addiction does [ [link removed] ].
Credit scores are down and bankruptcy filings are [ [link removed] ]way [ [link removed] ] up [ [link removed] ]. This is especially true among men and among younger people [ [link removed] ]—many of whom aren’t old enough to legally gamble, but are old enough to gamble away their student loan money [ [link removed] ].
Mobile sports gambling leads to higher rates of domestic violence [ [link removed] ] and higher rates of suicide [ [link removed] ].
Basically no one is making money on these apps. According to an extensive study that included more than 700,000 people [ [link removed] ], “fewer than 5% withdrew more from their betting apps than they deposited.”
DraftKings and FanDuel know all of this, of course. And I have no hesitation calling both companies evil, in terms of the willfully negative impact they have on society.
The blurry line between mobile sports gambling and Robinhood “investing”
Here’s where Robinhood comes in. They’re not just trying to get into sports gambling. Robinhood is masquerading gambling as investing, encouraging its customers to take outlandish, irresponsibly high-risk bets on its platform. I can’t sum it up any better than [ [link removed] ]The Wall Street Journal [ [link removed] ]:
To a remarkable degree, everything Robinhood does mimics some of the worst behaviors of online sports gambling.
How Robinhood plays into addictive behaviors and gambling
Robinhood users are disproportionately young and male [ [link removed] ]—as we’ve established, exactly the population most susceptible to gambling addiction.
As Scott Galloway put it, “Robinhood has gamified online trading into an addiction [ [link removed] ].” They’re deploying a lot of the same tactics and tricks that get you onto the app, and keep you on the app, that social media and online gambling platforms use.
Predictions markets [ [link removed] ]—the ability to wager on certain real-world outcomes—opened on Robinhood ahead of the 2024 election [ [link removed] ]. The Verge summarized this best: “Robinhood admits it’s just a gambling app [ [link removed] ].”
I’ve got my own thoughts on cryptocurrency, but recent studies have shown a “likely relationship between problem gambling and cryptocurrency trading [ [link removed] ].” It’s hardly the only place to trade crypto, but Robinhood is making an increasingly substantial portion of its revenue on crypto trading [ [link removed] ].
Robinhood largely makes its money by taking a small percentage of every individual trade [ [link removed] ]. This sets up misaligned incentives: trading at high volumes is not consistent with how people should be investing and saving.
Between the Robinhood Investor Index [ [link removed] ] and other indicators on the app, they strongly bias users towards “hot” stocks. The people buying the most popular stocks on Robinhood end up systematically losing money [ [link removed] ]: -4.7% over the subsequent 20-day period, which becomes substantial when it compounds.
For most of us, investing is—and should be!—saving for retirement and/or for a rainy day fund. That generally means that we shouldn’t be making trades that involve wild day-to-day swings that risk cleaning us out entirely. But Robinhood makes that part of its core platform of offerings.
In short: everything about Robinhood reads a little bit like this fake alcohol ad from South Park, with a faux-warning at the end that rings entirely hollow.
Unlike Robin Hood, Robinhood steals from the poor
In an interview last year [ [link removed] ], Robinhood CEO Vlad Tenev [ [link removed] ] talked about the company’s long-stated goal of opening up finance to everyone.
In certain respects, he’s correct [ [link removed] ] that there’s a lot about investing that isn’t egalitarian: access to private markets, access to venture investing, etc. is limited. Democratizing investments would be good!
But Robinhood isn’t doing that because they aren’t promoting savings and investment. They’re promoting gambling. It’s no accident that addiction centers are seeing such marked increases in patients seeking help for trading [ [link removed] ].
Sports gambling is relatively easy to regulate; regulating how people gamble on platforms like Robinhood is much harder. Do we want to wholesale ban people from options trading? No, probably not. But do we want most Americans putting their retirement savings in options? Very clearly not.
This TikTok video shows us how easy it is to start options trading [ [link removed] ] on Robinhood. (Namely, by lying about your expertise.) And that, along with a million other issues, is a real problem.
Make investing boring again
I’ve written before about how hard it is to be a young man today [ [link removed] ], and gambling platforms like Robinhood and DraftKings are making that problem much worse.
At the same time, trust in the financial services industry is among the lowest of any industry [ [link removed] ]. And a majority of Americans believe that the stock market is rigged against them [ [link removed] ], even though returns for decades have demonstrated that it’s part of a path to retirement for the 100s of millions of Americans with stock market exposure [ [link removed] ].
How do we solve this?
Regulation: Outlaw gamification that encourages big bets and irresponsible investments. Restrict notifications that encourage the sort of reactionary behavior that has people buying high and selling low [ [link removed] ].
Separation: Don’t allow people to invest and gamble (on sports or prediction markets) in the same account. It should not be that easy to move money from one to the other, and the two shouldn’t be treated as equivalents.
Education: Teach financial literacy in school [ [link removed] ]. Explain the power of compound interest. Help people understand that what they’re seeing on Robinhood and elsewhere—something they’re exposed to at an increasingly young age—is gambling, not investing.
People will always want to get rich quick; that’s an instinct as old as time. But the more we can do to keep people from recklessly gambling—something that’s become a Robinhood forte—the better off we’ll all be.
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