Bank of America has raised concerns about a growing financial risk posed by the rapid expansion of prediction markets and online sports betting in the United States. The bank’s global research team highlighted the increasing prevalence of these markets and platforms, noting that they are attracting new risks for consumers and lenders alike. Particularly vulnerable groups, such as young men and low-income consumers, are at higher risk of financial distress due to the impulsive and frequent nature of gambling facilitated by easy access and gamified platforms.

Bank of America Issues Warning on Gambling’s Impact on Credit

In a new note from its strategists, Bank of America identified the rise of online sports gambling and prediction markets as a “convergence of entertainment and speculative finance,” which could affect consumer credit quality. The research warns that these markets, where users can bet on outcomes ranging from sports games to political events, encourage frequent, impulsive wagering through mobile apps and user-friendly interfaces. These design features, according to the bank, create a significant risk for consumers who may overextend their credit and fall into a cycle of debt.

The bank specifically pointed to the availability of sports betting and prediction platforms like Kalshi and Polymarket, which have drawn in billions of dollars in trading volume. However, the ease of entry into these markets can lead to financial overextension, as consumers, especially those with limited financial literacy, may struggle to manage their debt. According to Bank of America, as Forbes reports, young men, particularly those in lower-income brackets, are at greater risk due to the combination of limited liquidity and the compulsive nature of the gambling experience.

The note also mentions a troubling trend seen in research from UCLA Anderson and USC, which found that in states with legalized online gambling, credit scores dropped by an average of 1% over four years, and the likelihood of bankruptcy increased by 28%. Additionally, debt collection rates rose by 8%, signaling the broader financial strain these markets are placing on consumers.

The Surge of Prediction Markets: A Growing Challenge for Lenders

Bank of America further pointed out that the rapid rise of prediction markets is creating a new and unexpected challenge for lenders, especially those in the subprime market. As more consumers flock to online platforms like Kalshi, where they can place wagers on a wide range of outcomes, credit risks are intensifying. The bank noted that “easy access and gamified interfaces encourage frequent and impulsive wagers,” increasing the likelihood of defaults and delinquencies.

Research from US News also supports these findings, revealing that one in four bettors have missed bill payments, and 45% lack sufficient savings to cover basic living expenses for three to six months. These findings point to the growing financial strain placed on consumers who engage in gambling markets, which often lead to increased credit balances and a higher likelihood of loan defaults.

Despite these concerns, the boom in prediction markets shows no signs of slowing. Companies like Robinhood, Kalshi, and Polymarket have seen massive growth, with Kalshi alone surpassing $8.5 billion in monthly trading volume by October. Even traditional sportsbooks like FanDuel and DraftKings are pivoting toward prediction markets, recognizing their growing influence and potential for profitability. These platforms allow users to bet on a variety of propositions—everything from sports results to economic and political outcomes—driving millions in new trades every month.

While proponents of these platforms argue that they offer fairer pricing compared to traditional sportsbooks, Bank of America remains skeptical, noting that these platforms are designed to function much like gambling apps. “The distinction is semantic,” the bank said, highlighting that both prediction markets and traditional sportsbooks often lead to similar patterns of consumer over-extension and financial instability.

Kalshi’s Defenses and Market Reactions

In response to the concerns raised by Bank of America, Kalshi has defended its model, emphasizing that as a federally regulated financial exchange under the oversight of the Commodity Futures Trading Commission (CFTC), it operates transparently and fairly. Kalshi’s spokesperson, Jack Such, argued that the platform’s revenue is not derived from customer losses, as is the case with traditional casinos, and that it offers “fairer, more transparent pricing.”

Despite these assurances, the ongoing rise of prediction markets continues to disrupt traditional sports betting and finance sectors. This disruption has led to increased competition, with some analysts predicting that prediction markets might even extend into other forms of gambling, such as slot games, in the near future.

Bank of America’s warnings underscore the growing need for careful regulation as these markets expand. As more consumers flock to these platforms, the risks of overextended credit and increased delinquencies loom large, especially for vulnerable groups already struggling with financial literacy and unstable incomes.