On Monday of this week, I had the opportunity to speak with Dave Nadig about the current state of gambling and prediction markets.
Dave is an ETF expert and is very in tune with markets. He is currently the president of etf.com.
He’s been outspoken about the way gambling is impacting our society, especially young folks. So, in order to create more awareness around the subject, I wanted to interview him on his thoughts about the current landscape.
Without further ado, Dave Nadig, everyone.
Clifford Cornell: Super interesting topic and I know that you’ve been really outspoken about it, as have I in finding the opportunity to speak with a couple different people about gambling. So, I’d love to open the floor to what you think and what you’ve seen for young folks. I think young folks are incredibly susceptible to the constant marketing that we’re seeing around gambling and prediction markets. They’re the ones consuming it online. So, let’s start with your initial thoughts.
Dave Nadig: So you know, I have to admit that you know, I mean this is my 40th year being in this business at this point and I have tried to, for my entire career, firmly stand on the side of investors, but also to be rational and recognize this as a capitalist society. And lots of products get launched that the average investor doesn’t need. But there’s also more to life than just investing and I understand that and I’ve tried to be pretty open minded about particularly the ETF industry as it has crossed over into more degenerate types of products.
Whether it’s triple leverage, whether it’s the promissory return of capital, options based products, there’s plenty of malfeasance to go around. I think, for the most part, I’ve been able to point at those things and say, okay, I understand why these exist. I understand the legal world in which they live. I understand where they impact markets.
Those kinds of things matter. This latest move, I would argue, is primarily coming from the prediction market side of the house, which has been primarily pushed by the crypto side of the house. That move has a very different character. And the reason that character is different is there’s been a usurp of the actual rulemaking process by which we bring new products to markets and to retail investors.
There are processes in place to have real conversations about market innovation. The appropriate forum for them is usually legislative, which is why we had so much discussion around things like crypto regulation and the Clarity Act. That’s great. That’s how that process is supposed to work.
We’ve skipped all of that in this race to get sports betting into the hands of as many people as possible. And it’s very difficult for me not to be extremely cynical and look at the senior investors and the board members on the prediction market companies, many of whom are either family members or in the current administration, and not think that there has been a lot of line skipping that’s gone on.
So, the reason I care about this as somebody who’s a market structure wonk is because we’ve completely just perverted how US market structure is supposed to work. Whether I agree with what we’re using that perversion for should be irrelevant. I think everybody should be on the side of we should not skip all of the normal processes for rulemaking to bring new financial products to market simply because there are interested actors who want to make it happen. I would hope we could agree on that.
Then there’s a separate question which tends to be perceived as more moralistic of people shouldn’t gamble. It’s bad, right? And I understand those arguments. I share a few of them, but not all of them. I love my poker game. I’m not anti gambling, but I do think that there is an obligation by the institutions of public policy not to cause harm. Just like I think we would be against the FDA coming out and fast tracking cigarettes to 18 year olds. We’d pause and say, wait a minute, is that really what the government should be doing?
But that’s what we’re doing with sports betting. We are fast tracking it. Explicitly fast tracking sports betting to the retail market and skipping all of the lines and all the state protection. So those, they’re two different issues, but I think they’re both actually important. And I think they’re both important to the wealth management community because we lean on market structure and we’re the biggest honey pot of money that the gambling industry is going after.
Clifford Cornell: That makes total sense to me. So, I have been seeing a lot of gambling ads as of late. I was watching the Knicks game and within my TV provider I went down to pause or change channel or something and one of the widgets that popped up was bet tracking.
And I was like, it is just so ingrained in almost everything that we go to do, right? The amount of notifications from apps that I have is nuts, it’s every single night: promo boost, don’t miss this, no sweat bet, all of that stuff. It just feels like we are being bombarded with these advertisements.
Dave Nadig: The thing is, this is why I think we have to separate the moral arguments from the legal arguments here, right? Because I buy lottery tickets once in a while and I’m pretty, pretty good at math. I understand that it is stupid. I also understand that eating a pint of Ben and Jerry’s ice cream is terrible for me. Every once in a while I have a bad day and I do that too.
I’m not anti-fun and I’m not anti-sin, if we want to call it that. But, I am for the state not being in the business of promoting harm, right? So the big difference with that ad that you’re getting on your phone in the middle of the Knicks game is, you’re not getting an ad for vodka and cigarettes, right? You’ve never seen, I guarantee you’ve never seen a pop up ad on your phone for vodka, cigarettes and probably for prescription medication. Because we have rules about how those things are done in American commerce, right?
It’s not because there’s some moralist sitting in D.C. saying, well, booze is bad. You can’t advertise that. You can buy booze everywhere, but we have restrictions on how people get access to it, where it gets promoted, how it gets advertised, how it gets bundled. I mean, almost every jurisdiction in the United States has rules about things like happy hours and opening hours for bars, right?
And that’s not because there’s some moralist sitting there saying, well, a bar should close at this time. It’s because over time the community has decided this is appropriate for us. What we’ve done, particularly in the prediction market lawsuits, the Kalshi lawsuits going in, I think almost every state in the country right now is that we’ve skipped all of that.
We’ve removed the ability for the local community to have any say on this. And the whole reason we had blue state gambling laws was specifically to allow local communities to say, hey, you know what, if Vegas and Reno want to make gambling their shtick, that’s awesome. Arizona, we get to say no. And what they’re saying now is no. Arizona, you do not get a say. That casino has to be allowed by right. Because it’s the Internet. And that’s where I think that we’ve crossed a whole bunch of lines about harm prevention that we don’t talk about much in financial services because frankly, we haven’t had to. It’s a fairly clean industry.
Clifford Cornell: Yes, that makes total sense to me. I think that just in seeing people my age, this stuff really does seem super dangerous. Are you seeing that as well?
People seem hyper focused on their ability to gamble. I think to some extent, Dave, this might be like a runaway train, right? You’re saying, we skipped over some of this legislation. States are not weighing in on whether they want to approve it or not. It’s on the Internet.
I think the post the other day that I commented on was somebody who lost $2 million gambling. And that was pretty much everything that they had saved up, completely lost now.
To me there’s also this other aspect of influence, right? I see my younger brothers watch these influencers where they’re going to Vegas where they’re doing the prediction market. These guys are going to put a quarter million dollars on XYZ today. And then it hits or they’re being paid and they’re not disclosing that they’re being paid by some of these casinos. And then the younger folks are like, oh my God, that’s sick. I’d love to do that for my job. And I’m like, dude, it’s not real.
Dave Nadig: Yeah. And I mean certainly these kinds of things are accelerated by social media et cetera, et cetera. I mean I have kids in their 20s and they’re inundated with this and they talk about the impact it’s had on their friends group.
But at some point this becomes really inescapable. Ontario did a great study, it was just released three weeks ago, about the day that the province of Ontario allowed single game betting in sports, which prior to that you couldn’t do, you couldn’t just bet on this game.
Literally within a week of that passing, the number of admissions to the Canadian health system that were flagged as self harm and gambling related went up by 300%. Now it was from a very low base. I don’t want anybody coming at me on the study and all that stuff, but it’s absolutely inescapable.
And whether you look at U.S. mental health statistics, harm prevention, suicide line calls, the whole nine yards, the presence of gambling in young people makes all of these metrics worse. And you can argue about why and whether it’s enough and whether we should care, but the data is absolutely, I believe, bulletproof.
And I’d be delighted to stand by somebody trying to point out that it’s not true. It’s just inescapable that this is accelerating the mental health crisis, particularly in young men and people under the age of 30. That is absolutely where it’s concentrated.
With the flip side being, hey, we all think of this as that guy at the gas station who’s blowing his thousand dollar paycheck on this. It’s not. This problem actually gets worse, worse as you go up the income streams. So, when you get to men under 30 who make over $150,000 a year, this problem is way worse than it is for people making minimum wage. And that’s going to become a real wealth management problem.
Clifford Cornell: I didn’t know that stat. Actually, that’s super interesting. And do you think that that might be derived from this idea that young people are like, hey, I’ve got time, I can make it back, I might as well risk it for the biscuit right now.
I think that a lot of young folks, because even we talk about $150,000 in income being great, right? But what I see a lot in my generation is this idea of feeling almost hopeless. I think a lot of people tie their dreams to home ownership and that just seems incredibly out of reach.
So whether they have 20 grand saved up and they gamble it to 0 versus 20 grand and they double it to 40 grand, they still can’t buy a house, right?
Dave Nadig: There’s a sense that it’s all rigged, right? And I understand why there is that sense that it’s all rigged. I think that we dismiss that vibe at our peril. I mean, I think, you know, in Kyla’s book, Kyla Scanlon’s book In this Economy, she really beautifully articulates in very simple language this idea of how there’s an entire generation that not only kind of believes that the financial system is rigged against them but has had nothing but evidence their entire adult lives that the system is rigged against them.
So, that’s the thing, I think we old people like me, where I have a 40 year look back on markets, I can say, yeah, I understand the potential of markets, but if you have a five year look back, look back on markets because you’re 23 years old, you have existed in a very different world than I did.
And your opinion that the system is rigged and therefore not really worth paying attention to because you know more about whether the Red Sox have got a chance next year than whether Nvidia is going to go under.
I understand how you get there. And this whole prediction markets thing is just capitalizing on that despair effectively.
Clifford Cornell: You know, just by seeing some of your posts, I actually really appreciate your ability to put yourself in my generation’s shoes. That was a great example of how you can conceptualize how young people are thinking. I guess that leads me to my next question. If you could tell young folks something about this debacle, is there something that you would tell young folks to focus on or something to keep in mind?
Dave Nadig: I’ll tell you the literal advice that I have given my 20 something children, you know, both of whom are out of the house and launched into careers and doing their own thing, which is, yes, you should follow all of the boring old advice about maxing out your 401k. Get the company match, all that boring financial stuff is all still true.
And with all of those incremental dollars you have to spend doing something, whether it’s gambling or whatever… invest in yourself, right?
Why would you give a hundred bucks to the other side of a Knicks trade when you could spend that hundred bucks and get a gym membership for a month or spend it learning how to cook something that you don’t know how to cook or reading a book that’s really expensive that you can’t find on Kindle. Like, I mean, I can come up with a million things to do with $100 that are not only better expected return but also better human flourishing fuel than any amount of money spent gambling.
Again, I’m not saying if you’ve got three friends over and two of them are Steelers fans and two of them are Patriots fans and you all want to throw 10 bucks on the game because it makes it more interesting when you get to the fourth quarter. I’m not saying that’s wrong, but I am saying that should not be available to everybody who is 18, regardless of any part of their situation, everywhere in the country without any regulation and oversight, that seems like a bridge too far.
So, for that individual, I would just always be thinking like, why am I spending this money here versus something else I could be spending that money on? That’s very easy for me to say because I am not trapped in a cycle of despair and inability to get out of my financial situation, and I didn’t spend, you know, my adolescence locked up under Covid.
But from that position, what I see is young folks who are doing okay in terms like the ones that I know have jobs and are doing all right, like yourself. I see a lot of Gen Z kicking ass out there. Don’t sabotage yourself with this stuff.
Clifford Cornell: That’s it. I think that’s a really good way of putting it because, you know, I see a lot of people in my generation who are doing really well.
And, and it’s like, why are you pigeonholing your potential into something, something like this? And look, I get like, I’ve got pals that do it every week. It’s 10 bucks or whatever.
But then you see the other end of the spectrum. And of course these catastrophic events might get a little bit more traction on the Internet and people are really uprooting their lives for this.
Dave Nadig: About 50% of Gen Z believes that gambling is a part of their long-term financial plan. This was from Betterment, I think.
Clifford Cornell: That’s absolutely nuts to me. Look, I’m a financial advisor, at no point in time has gambling ever been a piece of a financial plan.
Dave Nadig: Let me turn that around on you because I would argue, because you are an advisor and you have clients that you talk to and you have a platform on the Internet.
That’s a mistake because that means you haven’t brought it up enough. I have finally in the last six months, had six or seven advisors call me and have really open conversations about horrific stuff that has happened inside one or more of their families around gambling.
I’m talking millions of dollars pulled out of trusts through malfeasance and forged signatures. I mean, when people get in the hole on gambling, the amount of shame that covers them and their belief that they can get out of it I think is worse than opioid addiction. Right?
Because at least if you’re addicted to Opioids. There’s a good chance somebody’s going to catch you before you hit bottom.
If you’re in a multimillion dollar household and you’re the 25 year old scion of that household and have figured out how to forge the signature with the advisor to be able to get that million dollars out of your trust early for an emergency or something, you’ll do it because you think you’ll get it back next week and you won’t get caught.
This is what happens with gambling over and over and over again. And it’s not that people think that they can get away with it, it’s that they think they’ll get it back. And that’s the thing that I think the wealth management community is not focused on enough because that’s where all the money is.
We talk about the tails here. All of the money in gambling and prediction markets is on these very long shot, very large bets. People who go in and say, I’m betting $5,000 on a 300 to 1 shot because that’s how people turn it into a lottery ticket. They buy a 21 way parlay. And so that is like that edge of the curve is what we should be focused on.
Your friends who are betting 10 bucks a week because their friends come over like they’re absolutely. I could understand why they’d be like, why is it, what’s the big deal? It’s not, it’s not a problem. It’s not a problem for them. And for 99 people you line up against a wall, it’s not going to be a problem for them. It’s going to kill one of them.
Clifford Cornell: Yeah. I mean it’s very similar to a lot of things. Right. Like we’ve alluded to, like going out to a bar, having two, three drinks with your friends on a Friday night. Doesn’t mean that you’re a raging alcoholic.
I think, to your point, that’s exactly why I wanted to discuss with you because I think we need to be raising much more awareness about this. I’ve written a newsletter on it and try to cover it on Twitter and such. Because there is that 1% that is going to get carried away like you.
I mean, an instance in which you’re blowing up generational wealth is obviously astounding and that’s actually happening.
To be able to forge signatures, get money, deposit. And that’s another thing with some of these apps, there’s no deposit limit, there’s no check ups. Just go deposit more money if that’s something that you want to do. Especially when you get the world of crypto in it. There’s little KYC. It’s just deposit and go.
Dave Nadig: And leverage is relatively easy to find. And I think people assume like, well, you know, if I’ve got my client’s money all locked down, everything’s multi sig, or it’s all under an advisor lock, blah, blah, blah.
So, the head of the household has a $100,000 cowboy account. How much trouble can he get into? Well, a smart $10 million household guy with $100,000 can very easily turn that into several million dollars of liability and gambling.
You can go float three credit cards, post a bunch of stuff in collateral, take giant loans off of it, move it over the other side in crypto, and all of a sudden you’ve got another $100,000 in your gambling account. People think there are barriers, but there really just aren’t.
Clifford Cornell: And with all the advertising, it is riling up younger kids. It is not very hard to set up even if you were say, 15 with an older brother. And maybe the older brother is not interested, but, you know, hey, big brother is going to let you set up an account under his name.
Dave Nadig: When my son was under the age of 18, it was still rampant. Because it’s just not that hard. And you know, I was trying, I was explaining this to somebody the other day where they were like, yeah, but you know, a 15-year old doesn’t have access to a credit card or bank accounts. How would he ever get through all those gates?
And I was like, have you literally ever left your wallet around in the house while he wasn’t there for five minutes? Because if you wanted to snip, snip two pictures of a credit card and now all of a sudden you’re a 37 year old mom. Right?
Clifford Cornell: Seriously though. And you know, like, I’ve even heard instances of parents being like, oh well, he’s under 18, so I set it up under my account and I’ll be like, that’s significant money, that, that they’re gambling.
And with very, very little oversight. Especially as, I mean there, there’s a technological disconnect, right, between generations. These young kids, they’re born with an iPad or whatever it may be in their hands, it’s second nature to them, they just know how to use it. They’re not dumb when it comes to this kind of stuff.
Dave Nadig: I’m beating a dead horse here, but, and this is the advisor’s problem. Most advisors I’ve talked to, gambling is not a question that comes up in onboarding.
Do you guys, as part of your normal onboarding questionnaire, ask every member of the family about whether or not they gamble and like what their relationship with gambling is?
Because I feel very strongly that should be like chapter one of the CFP is that you’re establishing the financial health of a household that’s coming to your practice. You ask them about their debt, you ask them about their assets, you ask them about their jobs, you probably ask their 23 year old kids about their job prospects.
We have all these conversations, but do you ever say, how much money do you spend on gambling a month? And hopefully you get a lot of “no’s” and then you move on.
Just like when you go to the doctor and the doctor says, are you a habitual heroin user? Right. Which they have to ask you every year when you do your checkup. Right? They always say, well, I have to ask you these questions. Are you currently using intravenous drugs? And you know, everybody laughs. Except at some point it’s a real gate.
Clifford Cornell: Yeah, absolutely. I think that this is a really awesome conversation. Is there anything else that you want to be included, whether that be more on legislation, your thoughts and feelings.
Any advice to young, any additional advice to younger folks how you foresee the industry changing?
My personal opinion is that these gambling ads are going to, whether it be prediction or just sports betting, whatever it may be, are going to be our generation’s smoking ads. I think they’re going to be highly regulated at some point in the future, but only until we continuously see examples of the perils of this.
Dave Nadig: Gen Z continues to be the test tube generation for the United States. We experimented on social media with you, we experimented with phones with you, we experimented raising people with iPads with you all.
We’re going to experiment and give you unlimited access to gambling too. And you’re right, we’ll fix it when you’re all 35, and 10% of you have lost everything. So, I mean, I’m being slightly over the top there, but, no, I think you are correct. I think eventually this stuff gets shut down.
If I can have any thumb on the scale, it will be to do that faster. Because I believe the faster we start putting some boundaries around this stuff, the more harm will be prevented over time and then we’ll end up with a more vigorous set of ways to prevent harm here.
And again, I don’t think it’s going to end up being that well, yeah, I can’t bet on sports in the United States anymore. I don’t think we’re gonna have prohibition for gambling, but I think we might get reinforcement of the blue sky laws state by state.
Tribal agreements, tribal laws on those things. I’m not a fan of those things. I’m not for the tribal gaming industry or for Nevada and Atlantic City and all the places you can gamble around the world, around the country.
I think those will still be there. And I think they’ll all have sports books. And if you live in those states, you’ll be able to sign up to their apps and they’ll probably all still be run by the same back shop at Kalshi and Polymarket and DraftKings and FanDuel. Right. It’ll be the same tech, but it will be in a structure that lets the long tail participate for entertainment and keeps the short tail from imploding.
Clifford Cornell: I like that. And I think that if we’re to go back on some of the other addictions that you had mentioned, right. It seems like there is a lot of support. There is a lot of awareness, right?
I can go back to when I was in third, fourth and fifth grade and there were discussions around drugs and all of that stuff, right? We don’t really see much of that with gambling. We really see the cool side of it, right?
Dave Nadig: TV ads with LeBron James on them, right? I mean, that’s what we see, right? We take people’s heroes from multiple generations. I mean, which one is the ad that’s got freaking Spike Lee in it? I mean, come on.
We’re literally going out and hunting heroes of generations and throwing them on gambling ads. And yeah, I think it’s not only bad for the people doing it or for a subset of the people doing it, I also think it’s ruining sports, which just makes me sad.
You know, I couldn’t go to an MLB game this year without seeing 25 ads for gambling. Every single game in the park, advertising to the nine year old sitting next to me.
The other reason this makes me so upset is post Covid, it was very clear to me that Gen Z in particular, but honestly, I think most of the country was going to be desperate for forms of community and connection, right?
And whether that was the Taylor Swift eras tour, the Super Bowl, getting out with groups of people to do big cultural events has been a big part of a lot of people’s recovery, mental health wise from COVID 19.
So, that’s part of why I find this indoctrination into sports to be so awful. Because I know kids, I know young men for whom basketball was what got them through two really fricking hard years. Not playing it, just being able to not think about the goddamn world and instead focus on basketball a couple times a week.
That’s what brought them together as a community in their dorm rooms or going to games or whatever. So, like, sports did this amazing thing, and I’m not a huge sports guy coming out of the pandemic, and now it just feels like we’re taking a freaking bat to the head of that very positive thing that happened out of COVID.
Clifford Cornell: Yeah, it’s a really interesting dynamic, especially like being a younger person in Covid. Doug and I have talked about this very often, right? It really put younger folks in a very vulnerable state, right? And now their pastimes are being bombarded with advertisements. More awareness around gambling is necessary.
Dave Nadig: It’s the state of the world. I mean, luckily I do think this is, we’re not the only people talking about it. This is tied up. Kalshi is going to be tied up in court for at least the next year or two on this stuff.
And I guess to some extent it’s gamblers versus gamblers on fighting this because it’s the entrenched gambling industry that is fighting the most hard against the new gambling industry.
Those are the people who are in court fighting each other, which makes me happy because I think this is exactly the kind of thing that if not legislated has to be decided by courts.
So, you know, that’ll take its time. I obviously have my opinions about which way I hope it goes, but at least that is a public forum and a viable process for settling the disagreement. So, that makes me happy.
Clifford Cornell: That is good. Yeah, hopefully. I, I mean I stay hopeful. I think that we’re a pretty malleable generation, you know,
Dave Nadig: If not you, then who, man?
Clifford Cornell: Seriously! Hopefully things turn around and I think that the more that people with platforms create awareness around this stuff, the better off that we are.
Dave Nadig: It’s the hill I’ve decided to die on. I’ve decided like I’m old enough now that if this is what ends my career because I piss off just the wrong people, so be it.
That’s a wrap everyone. We need to be creating much more awareness around the perils of gambling. I encourage you to have these conversations with your friends and family.
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