Bank of America Warns: Predicting the Market and Sports Betting Will Lead to New Credit Risks

The Zhitong Finance App learned that Bank of America issued a warning about predicting the explosive growth of the market and sports betting, saying that it may cause consumers to incur excessive debt and default on loans. Bank of America strategists, including Mihir Bhatia, wrote in a report that the rapid expansion of such betting activities is creating new credit risks for lenders as gambling losses put financial pressure on consumers.

The strategist notes that since the US Supreme Court overturned the federal ban on sports betting, online betting has become increasingly popular. They said that recently, prediction market platforms such as Kalshi Inc. and Polymarket are “creating a new form of speculative participation” through financial contracts linked to sporting events and other events. They warned that the negative financial impact of these betting activities is likely to be most pronounced among low-income consumers, particularly young men.

The strategist said, “Easy access and a gamified interface encourage frequent and impulsive betting. For investors, this fusion of entertainment and speculative finance means increased behavioral risk, which may depress credit quality, increase default rates, and affect the profitability of card issuers and subprime lenders.”

According to reports, researchers from UCLA's Anderson School of Management and the University of Southern California have previously discovered that in states that allow online gambling, the average credit score drops by nearly 1% after about four years, while the possibility of bankruptcy increases by 28%. Furthermore, they reported an 8% increase in the amount of debt sent to collection agencies.

Bank of America strategists point out that the marketing of gaming products “amplifies participation and translates into rising credit balances and higher loan loss rates.” They warned that among the companies covered, including Bread Financial Holdings (BFH.US), Upstart Holdings (UPST.US), and OneMain Holdings (OMF.US), are the most vulnerable to “low-income or credit-stressed consumers.” They stated, “The online gaming market poses new risks to lenders that have not been addressed in their history, and underwriting models may need to be adjusted.”

Bank of America said it has shown worrying signs in some consumer pressure indicators. Bank of America cites a survey that found that a quarter of gamblers reported having missed bill payments, and 45% said they didn't have enough money to pay for three to six months of living.

In recent months, the prediction market has surged in popularity by offering “yes/no” binary financial contracts linked to results such as election results and sporting events. According to data compiled by DuneData on Dune Analytics, the nominal monthly trading volume of Kalshi and Polymarket surpassed 8.5 billion US dollars for the first time in October. Recent growth has been largely driven by contracts linked to sporting event results on Kalshi. The exchange used its financial license to provide so-called “event contracts” across the country, ignoring objections from state-level gaming regulators.

Bank of America strategists said, “Although they are touted as predictive tools, their mobile-first design and gamified interface mimic sports betting platforms, blurring the line between investing and gambling.” This convergence has raised gambling-like concerns about coercive behavior and liquidity pressures, particularly among younger and lower income consumers.

Predictive Markets, on the other hand, said that their model is fairer to customers than sports betting companies because they provide a neutral place to trade and do not directly gamble with customers. Kalshi's spokesperson Jack Such said, “As a federally regulated financial exchange, Kalshi's model provides fairer, more transparent pricing and doesn't extort consumers like a casino. Because we are not a 'bookmaker', our revenue does not come from customer losses.” Polymarket said on Tuesday that it had removed one of the last regulatory hurdles to reopening in the US after a few years after reaching a settlement with the Commodity Futures Trading Commission which forced it to leave the US market.