The Economy Is Back. Welcome to the Casino

Now that the pandemic relief jobless benefits have expired for millions of Americans and the eviction moratorium was ended by the Supreme Court, we are finally beginning to return to a normal economy. That is to say, one featuring hunger, homelessness, and an increasingly larger dose of gambling.

At the beginning of the year, we saw mobs of retail traders temporarily bleed billions from Wall Street investors shorting GameStop by squeezing the stock and pushing its price to new, seemingly stable, heights. It was only a matter of time before the trend was replicated, with retail traders training their sights on more struggling stocks like AMC and Blackberry.

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The stock market’s speculative frenzy, however, was neither the first nor last one of these “investment manias”, as New York Times reporter Erin Griffth called them in a piece earlier this year, which have consumed not just retail traders, but institutional finance and average folks alike across many diverse areas of the economy.

From financial fads like SPACs—shell companies that take companies public through reverse mergers—to cryptocurrencies, online casinos streamed by megastars on Twitch, the housing market, and more, it appears as though gambling is expanding into nearly every nook and cranny of society. All of this activity has had real, and very often negative, effects on people who get caught up. 

“What started my gambling (slots) was curiosity, I wanted to try it myself because it looked fun,” a one Twitch viewer who asked to remain anonymous due to the stigma around gambling addiction told Motherboard in an interview. “I had control in the beginning, but when I lost money I wanted to win it back. The slots made me lose money so fast that I just kept depositing more and more money, this kept on for a few months and I still can’t fully quit. What is different now is that I’m down about $4,000 and trying to win it back, which is very stupid. After a day of gambling, I go to bed feeling like shit knowing that I lost money.”

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All this was supposed to ease up and eventually disappear as the pandemic eased up, relief payments ended, and lockdown measures were relaxed. It’s only gotten worse, with no end in sight. 

Across our wonderful economy which is certainly pockmarked by bubbles, here are just a few of the areas where gambling has grown ascendant thanks to the pandemic.

Sports Gambling

Despite the disruption that COVID-19 brought to sports, Americans turned to betting during lockdown in a big way. 

$4.3 billion in bets were placed on Super Bowl LV, the record for a single bet in U.S. sports gambling history, according to betting tech company Bragg Gaming Group; 7.3 million people placed bets through gambling platforms, up 63 percent since last year. Ahead of this year’s March Madness, a record 47 million Americans were projected to place bets and wager on the outcome. In Colorado, where sports betting was legalized in May 2020, projections were initially between $9.7 million and $11.2 million for the first year before being cut to $1.5 million to $1.7 million because casinos were unwilling to pay to host sports betting; gambling ended up bringing in $9.4 million anyway, driven by betting on apps.

At play here are two main factors: first is a 2018 Supreme Court ruling that struck down the federal ban on sports gambling, but still meant individual states would need to pass laws legalizing the activity. Since then, sports gambling has been made legal and on the verge of being made legal in over 30 states with at least a dozen more considering gambling legislation.

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In a USA Today report on the sports betting industry, one recurring theme was not only the extent to which gambling has taken off since the decision ($65 billion wagered since 2018) but how since the pandemic, sports betting has not only reached new heights but new geographic distributions: Nevada only counted for 15 percent of the $3.68 billion wagered in June and New Jersey enjoyed 24.99 percent of wagers.

Earlier this month, the Chicago Cubs announced a multi-year partnership with sports betting company DraftKings that will eventually open a retail sportsbook on the premises of their Wrigley Field stadium. And this summer, the Capital One Arena in D.C.—where the Washington Capitals and Wizards play—entered a partnership with bookmaking company William Hill U.S. that turned its box office into a temporary sportsbook while a permanent one is constructed elsewhere in the stadium. 

The pandemic has been kind to DraftKings investors in particular: since going public via a SPAC merger in April 2020, its market value climbed from $5.8 billion to $20.69 billion. The company’s gambling operations revenue in the first half of 2021 hit $530.9 million, up 281.7 percent since 2020’s first half (it’s worth mentioning its losses have continued as well, hitting a net loss of $651 million).

But, as the Boston Globe points out, while DraftKings was well positioned to take advantage of the 2018 Supreme Court decision through lobbying and an already established online platform for gambling, slumbering giants lie in wait to compete. Casino companies are also making investments in sports betting. BetMGM, a joint venture between MGM Resorts International and Entain Plc, has its hands in a wide variety of online and physical locations across the country and enjoys a 12 percent market share of the sports betting market, almost as much as every other competitor combined.

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Online Casinos

Over the past few years, with growing regularity, prominent influencers who document their lives for legions of subscribers on platforms like YouTube and Twitch have been roping fans into increasingly complicated financial schemes. Over the pandemic, gambling streams rose in popularity on Twitch, a particularly dangerous turn that some streamers have been quick to profit from but slow to hold one another accountable for.

Slots, the Twitch category under which all slots gambling games fall, quickly became a juggernaut on the platform. Currently, the game has over 820,000 followers. According to analysis by statistics service SullyGnome, for large swaths of the year it’s been a top ten trending game. Cumulatively, over 84 million hours of gambling games have been watched. According to Twitch’s own advertising data, 21 percent of its overall audience is between 13 and 17 years old, though it does not break down its audience by category watched. Major current and former Slots streamers, like Felix “xQc” Lengeyel (9.2 million followers) have some of the largest audiences on the site. 

All of this has raised significant concern among observers. As sports betting giant DraftKings notes, online casino gambling is illegal in all but five states: Michigan, Pennsylvania, New Jersey, Delaware, and West Virginia. Nonetheless, streamers regularly encourage their viewers to bypass such trivialities with VPNs that change their IP address to one outside of the United States so that they can join the streamers as they gamble. 

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“It’s not illegal for the player to play,” Nikham said in a video insisting it’s legal to gamble online in Texas (it’s not). “It’s on the casino to ban players, right? So if you’re on a VPN but they think you’re from that VPN location, then they’re gonna let you play, right? But if they find out you’re in a certain country that they’re not licensed in, the onus is on them to ban you but it’s fine for you.”

What most Twitch viewers probably don’t know is that major Twitch streamers are funneling viewers into the complex world of online gambling in one place in particular—the small island nation of Curaçao, located just off the coast of Venezuela, where spinning up online casinos is an industry unto itself and gambling-related corruption is rampant. The most popular casinos on Twitch, for example Stake, are registered in Curacao under a complex licensing and sublicensing system with legally dubious origins, and it’s not clear how close the relationship is between streamers and the shell companies that set up shop there. 

Stock market

As the pandemic has progressed, a few areas of the stock market have become rife with speculation. The most obvious instances are the short squeezes orchestrated by retail traders coming out of online communities like Reddit’s r/WallStreetBets or Tik Tok’s financial advice groups. But that’s only one part of an ongoing trend where more and more normal people are trying their luck on the market, either by buying stocks or making bets on which direction the price will move. 

A lot of attention has been focused on the youngest group of those traders―such as the Gen Z traders too young to remember the 2008 financial meltdown―and their supposed desire to “expose” the financial system, but such analysis only takes us so far. As Kia Barrow writes in an overview of the limits of generational analysis for The Drift Mag, the shift has less to do with age cohorts and more to do with who has access to assets like commercial real estate and policies that have prioritized the perpetual appreciation of those assets at great cost to each new generation. This makes sense when we consider some of the other gambling that has been going on and had demonstrably larger effects on markets. As the pandemic battered the bets placed by tech investing giant SoftBank, founder Masayoshi Son doubled down and  discreetly deployed his own capital as a weapon. This time, the aim was to pump up the value of Nasdaq tech stocks and realize multi-billion dollar gains on various equity positions or options contracts; after the “Nasdaq whale” was unveiled as SoftBank, those gains evaporated as tech stocks tumbled and the company came under SEC investigation.

Investors with deep pockets aren’t the only ones involved in options trading: it’s grown at a prodigious rate thanks to retail traders and in 2020, a record 7.47 billion contracts were traded according to the Options Clearing Corporation―45 percent higher than the previous record set in 2018. But these investors are clearly driving the mania that is raising concerns about bubbles, not retail investors. IPOs, or initial public offerings, also hit a record, with 447 new offerings raising over $165 billion. In fact, 2020 was the best year for the IPO market since 1999, when 547 IPOs raised $167 billion.

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An equally costly, but less regulated or scrutinized vehicle for going public took off during the pandemic: a SPAC, which is a blank company spun up for the express purpose of acquiring another company to take public. In 2020, SPACs raised $83 billion, six times what was raised in 2019. The real value of a SPAC is not realized by the company, which consistently loses value, or shareholders with their  depreciating equity―but by sponsors and investors who exit early. The former take a large cut of the shares at essentially zero cost, while the latter tend to receive free shares they can sell for a 10 percent return with no risk. 

For a while, it seemed as if SPACs would continue to outraise traditional IPOs: SPACs raised nearly $40 billion by February, and $87.9 billion by March, reaching nearly $100 billion by the beginning of April. In the five months since, SPAC activity has sharply declined with only $11.7 billion raised thanks in large part to SEC scrutiny earlier this year. Whether or not they’ll continue depends on whether companies will continue to desperately pursue this wasteful, inefficient, and poorly structured path to public markets.

Cryptocurrency and NFTs 

Most of the focus on asset speculation has centered on cryptocurrency prices and cryptocurrency-related assets, and understandably so. 

Take the price of Bitcoin: in 2020, it oscillated between a year low of $4,748 to just shy of $30,000 by the year’s end. It shot up past $60,000 this year, twice, with major price swings coinciding with public appearances and statements from well-known boosters like Tesla CEO Elon Musk to mining bans and trading restrictions in China

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Estimates vary, but studies of Bitcoin wallets over the past few years suggest two percent of wallets own at least 95 percent or more of existing coins―and that this extreme concentration is only getting worse. A similar trend has emerged in Ethereum where the majority of all coins are held by a small group of whales, which includes institutional investors looking to furnish their portfolios. 

Bitcoin and Ethereum are only the tip of the iceberg; during the pandemic, thousands upon thousands of cheaply-created coins were launched on new blockchains, many of them promising massive returns to investors using complex mechanics. Many, many of these projects have ended in financial failure or implosion due to scammers and hackers taking advantage of investors seeking massive returns with a huge dose of risk. 

NFTs, which emerged full force in the pits of the pandemic this summer, have also turned into something of a casino, with investors seeking the newest hot project to snap up and resell, or hold as it increases in value. NFTs even recently had their own insider trading scandal, when an employee at a marketplace was discovered flipping NFTs they knew would be prominently advertised. An estimated $2.5 billion in NFT sales took place in the first half of 2021, compared with $13 million in the first half of 2020. But not everyone is a winner; 50 percent of NFT sales on OpenSea were found to be under $200, according to one recent analysis

Housing

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There’s also been massive ongoing appreciation of non-crypto assets both before and since the pandemic. 

For some time now, the housing market has grown increasingly unmoored from reality. Robert Shiller, a behavioral economist who co-created an index to track national home prices, told NPR in 2019 that since 2012 the country had been in its third largest housing boom. The pandemic only accelerated those trends, with the emergence of startups recreating timeshares and sparking a house-flipping arms race to deliver outsized returns to investors’ otherwise idle capital.

Theories and stories have floated around claiming that large investors or platforms like BlackRock or Zillow are to blame for a housing shortage and price surge, but more blame lies with local governments and NIMBYs spending decades blocking the construction of affordable single-family homes–for now, at least. 

Other entities, however, really are large enough to shake housing markets. The news of Chinese real estate giant Evergrande potentially defaulting on its $305 billion debts was enough to spark a momentary panic and a rush of comparisons to the 2008 collapse of Lehman Brothers, but such a comparison falls flat because of the myriad of differences between markets then and now, as well as the political economy of housing in the US and China. 

One comparison we might make is to WeWork, not just for the unfinished properties and diversification into unrelated money-burning ventures, but the role of debt financing in the midst of two separate debt-financed tech bubbles in China and the US. But perhaps Evergrande—and the other major property developers who are sitting on hundreds of billions of dollars worth of debt—might be best thought of as yet another casino home to a great many risky bets, a light touch of corruption (allegedly), the government’s blessing, and a long line of financiers eager to throw away their money.

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For millions of people, the pandemic recession hasn’t ended and won’t end anytime soon. They’ll continue to search for work, struggle to make ends meet and engage in risky bets, or go without food or housing. At the same time, various sectors of the economy have thrived or will soon enough as they jockey for consumers and investors or to take advantage of the pandemic. Cumulatively, billions of dollars will flow into their pockets as they leverage gluts of capital to grow and grow, whether or not they’re in the black or actually serve a socially useful purpose.

Welcome back to the casino.

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