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First, a little insight so readers know I’m not just bloviating here. When I’m not writing here at Advisopedia, one of my other assignments is covering the casino and sports betting industries, including prediction markets.
I’ve done so for six and a half years, four of which I’ve lived in Las Vegas. Combine those two points and I’ve covered or heard enough stories about the dark side of gambling to last me a lifetime and there’s only slight hyperbole in that statement.
So I was heartened to hear that Schwab IMPACT in Denver last week, Charles Schwab CEO Rick Wurster discussed the increasingly, potentially perilous blurring of the lines between betting and investing. Perhaps, if not likely, part of the impetus behind Wurster’s comments are the rise of prediction markets – exchanges where bettors/traders trade/wager on everything from crypto prices to elections and yes, sporting events. Kudos to Wurster for going down this road because Charles Schwab, the man not the company, was an early investor in Kalshi.
Appropriate Time to Break Investing, Betting Links
Wurster told the audience at IMPACT that just 5% of bettors – I think that number is high – pull more money out of their DraftKings or FanDuel accounts than they put in and that’s one reason why now is the time for advisors and parents to tell 20-somethings there major differences between betting on games on sound long-term investing principles.
“I hope as an industry, we're able to tell the story to clients about the difference between gambling and investing,” Wurster said. “I just don't want young people in our country that think that betting on the Monday Night Football game is equivalent to being invested for the long term in stocks and bonds.”
There’s some urgency here because there’s a fine between meme coins, meme stocks and sports wagering – all pursuits enjoyed by Gen Zers, particularly men. The urgency is born out of apps, such as Robinhood Markets (NASDAQ: HOOD), making it possible for clients to buy stocks and meme coins and bet on sports (via partnership with Kalshi) all under one umbrella.
Don’t blame Robinhood and the array of other trading platforms that established or getting into prediction markets. Those companies know their customers and they’re giving their customers – particularly young men – what they want. However, if you’re an advisor or parent with concern that a client or child isn’t knowledgeable of the difference between betting and investing, regale them with this nugget: The average Robinhood account size is about $5,000. The average self-directed brokerage account (SDBA) at Schwab was almost $336,000 at the end of the first quarter.
Convenience Isn’t Always a Good Thing
We all love convenience and it’s undoubtedly convenient to bank, fund a retirement account, buy stocks and bet on elections or sports through a single app. But for some investors and bettors that convenience comes with costs. For example, some studies indicate that sports bettors that get too carried with that form of entertainment file bankruptcy at higher rates than non-bettors, meaning they’re apt to have lower credit scores.
“You've seen an incredible rise on these financial services apps of people gambling on sports,” said Wurster at the conference. “In fact, if you log into some of the well known financial services apps on a Monday to check your balances, you are likely to get a pop up alert asking you if you want to bet on Monday Night Football. The challenge I see with this is that investing over the long run pays off.”
Convenience isn’t the only culprit. What’s worse is that some young people view betting and prediction markets as wealth-building tools. For a scant percentage, certainly less than 5%, that will be true, but for the vast majority of young people that bet and invest, the latter has been and will continue to be the superior option.
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