By Nick Devor

The spread of sports betting and rise of prediction markets pose an underappreciated threat to lenders such as Sallie Mae, Bank of America Securities analysts wrote in a research note.

"For lenders the increasing availability of online betting markets raises the potential for revolving debt spikes, accelerated defaults, and higher charge-off rates, particularly among subprime borrowers," the analysts wrote, adding that widespread sports wagering represents "a new risk for lenders, one that they have not had to deal with historically and underwriting models may need to be adapted."

Credit card issuers and firms that lend to lower-income borrowers "face elevated exposure as behavioral risks intersect with liquidity stress," the analysts wrote, calling out lenders Bread, Upstart, and One Main Financial as those most at risk.

Student loan issuers such as Sallie Mae and Navient could be affected as well, the research note said, and lenders aren't the only ones at risk.

"The negative financial impacts of sports betting are more pronounced for young men, especially in low-income areas," whose limited financial literacy makes them "highly susceptible to compulsive wagering and credit stress."

The research note, issued last week, suggests that the ease of betting on a sportsbook app can lead bettors to quickly accumulate losses without realizing the full extent of the damage done to their bank accounts. Analysts cite a U.S. News survey from July that found 25% of sports bettors have been unable to pay a bill because of their wagering habits.

While sports betting hasn't been legalized in 12 states, including California and Texas, it is effectively accessible nationwide thanks to prediction markets that offer sport event contracts. The federally-regulated financial instruments can replicate the kinds of wagers available on a sportsbook app such as DraftKings, such as parlay bets and wagers on an individual player's performance.

Prediction-market firms Kalshi and Polymarket have had a banner year, putting pressure on the gambling industry and crushing the stocks of DraftKings and FanDuel's parent Flutter Entertainment. But Bank of America analysts wrote that prediction markets don't just threaten sportsbooks.

"As these markets scale, lenders may face indirect exposure if borrowers use credit to fund speculative activity," the analysts wrote, "reinforcing the behavioral risk theme already evident in sports betting."

Write to Nick Devor at nicholas.devor@barrons.com

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November 26, 2025 14:00 ET (19:00 GMT)

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