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Barely a year after the US Supreme Court overturned the federal ban on sports betting, the emerging industry already is exceeding expectations.
A recent tweet from the American Gaming Association noted that American bettors have legally wagered more than $10 billion on sports since the fall of PASPA in May 2018.
The Legal Sports Reportsports betting revenue tracker indicates books didn’t quite reach that eight-figure milestone but came close enough to count. The seven states that report revenue posted a combined $9.99 billion in handle from June 2018 through July 2019.
That mighty number is the total amount wagered, not the revenue left after paying out the winners. Sportsbooks held about 6.25% of all bets nationwide, yielding a combined profit of $625 million over the same period.
So, where is all that revenue coming from? And where is it all going?
US sports betting revenue at a glance
Here’s what the data looks like from the first 13 months of expanded legalization, with Nevada and New Jersey doing brisk business:
That big green wedge represents the 84% share of revenue retained by sports betting licensees and their suppliers/partners. The little local slice includes their tax obligations to cities, counties, horse racing purses, and other community investments.
After paying the pipers — and before any expenses — an average operator holds $5.25 of every $100 wagered.
Young (and old) operators blazing the trail
The growth of US sports betting owes a lot to two companies that historically worked to distance themselves from gambling.
SCOTUS cued a metamorphosis for DraftKings and FanDuel, sparking their transition from daily fantasy sports into full-scale sports betting. They’re not just winning US sports betting outside of Nevada; they’re dominating it.
In NJ sports betting, for instance, DraftKings Sportsbook and FanDuel Sportsbook account for about $140 million in online revenue to date — out of $177 million for the entire market. And based on the early returns from Pennsylvania and West Virginia, it looks like that trend will continue elsewhere, too.
William Hill also deserves mention for the sheer breadth of its American empire. Most other operators, ambitious though some of them might be, so far account for a negligible percentage of revenue.
None of these online companies, however, would be able to serve the majority of markets without the aid of local brick-and-mortar casinos.
Casino companies partnering up
The expansion of sports betting also coincides with a big shakeup in the US casino industry. Properties are changing hands all over the map, and the pending marriage of Caesars and Eldorado figures to shift the long-term balance of power.
The country’s largest casino companies are, or should be, the primary players in the emergent industry.
In determining the framework for sports betting, lawmakers often give casinos the keys to the kingdom. They’re already vetted and licensed and protecting their revenue is a key consideration for states that rely on gambling revenue to partially fund their budget.
Third-party operators can still participate, but they must do so under a partnership with an existing licensee in most markets.
How that plays out
This structure allows casinos to court a number of suppliers (and vice versa) in an attempt to find the best fit. In some cases, such as with the big Penn National Gaming deal, there’s room for more than one partner in the relationship.
Terms vary across states and partners, but LSR is aware of some revenue-sharing arrangements in the range of 10%. These deals are sometimes accompanied by flat fees reaching into the tens of millions of dollars in larger markets like New York and Illinois.
Tennessee marks a notable exception to this rule. With no casinos to act as licensees, lawmakers in the Volunteer State crafted a framework that is entirely untethered. Companies that are seeking to participate in TN sports betting need only to clear the licensing process and fork over the $750,000 fee annually.
State coffers catching loose change
Mainstream media outlets perpetuate the myth that US sports betting is underperforming. States barely make any money, and the societal risks of expanded gambling may outweigh the rewards.
Here’s an excerpt on the topic from theAssociated Press:
Us Sports Betting Sites
” … most of the states that moved quickly to legalize sports betting after the Supreme Court cleared the way are still waiting for the expected payoff. Tax revenue has fallen far short of projections in four of the six states where gambling on sporting events started last year …”
While it’s true that some states are not meeting projections, the “underperforming” states share some commonalities.
Each of their laws is lacking in some way, be it with a burdensome tax rate, a lack of online betting, or a case of regulatory foot-dragging. And, to begin with, each was somewhat optimistic with its initial projection.
Some catching more than others
States with sharp policymakers are doing just fine, particularly those that understand the role of the internet in modernized gaming.
The Garden State, for example, allows casinos and tracks to deploy up to three online brands apiece. The alliances and competition benefit both the bettor and the state, which has collected more than $30 million in related taxes since launch.
That’s not exactly chump change. NJ online casinos have generated more than $70 million in tax revenue over the same period, and land-based gambling continues to be big business for Atlantic City.
The fact that states aren’t getting rich from expansion shouldn’t be seen as a failure, nor should tax revenue be the only goal of legalization. The ancillary benefits to casinos and the conversion of existing bettors into safe, regulated channels provide additional cause for action.
Don’t forget about Uncle Sam
Often overlooked in the discussion, the federal government is a beneficiary of expanded sports betting.
Under a law first passed in 1953, all US sportsbooks pay Uncle Sam0.25% of their handle — right off the top and fully separate from taxes they remit on gaming revenue. While a quarter from every hundred dollars doesn’t seem like much, those payments total almost $25 million over the first 13 months of expansion.
The largest markets pay the most, of course.
Nevada, for starters, has surrendered more than $13 million of its revenue to the federal excise tax since last June. It’s the sort of number that simultaneously represents a significant leak for the state budget and a drop in the bucket for the IRS.
Perhaps it’s no surprise that Nevada Rep. Dina Titus previously called on Congress to repeal the tax.
You can read a thorough discussion of the history and the mechanics of the tax from Gambling and the Law.
Top Us Sports Betting Companies
Leagues left out in the cold?
If professional sports organizations had their way, they’d be the biggest winners from US sports betting. Led by the NBA and MLB, leagues began lobbying in 2018 for an integrity fee amounting to 1% of the amount wagered on their games.
To date, no state law includes any such fee payable to the leagues.
Despite their failure to grab a direct cut, however, sports organizations are by no means losers amid expanded sports betting. Like the casinos themselves, leagues stand to see a substantial increase in fan engagement (read: revenue) as sports betting continues to grow in the US.
NBA owner Mark Cuban figures the value of his Dallas Mavericks franchise doubled with the SCOTUS decision, for example. Dallas Cowboys owner Jerry Jones opined that the value of NFL broadcast rights could increase by 50% in the next round of negotiations.
The fight isn’t finished yet, either.
Leagues continue to lobby for mandates requiring sportsbooks to purchase official league data — a pitch that was partially successful in Illinois and Tennessee. Those two states are the only ones with laws that subject their operators to such a monopoly on in-play data.
How quick to the next $10 billion?
Top Us Sports Betting Companies
It took just over 13 months to reach $10 billion in nationwide handle. It definitely will not take that long to get to $20 billion.
Sports betting is sprouting like a weed, having expanded into 13 US states in the post-PASPA era. That list is growing fast, too, with another five plus the District of Columbia lining up at the starting line. Big Pennsylvania is still spooling up its industry, and smaller markets in the Midwest may turn out to be not so small after all.
What Companies Will Benefit From Legalized Sports Betting
Perhaps noticing the trend in early-adopting states, lawmakers are increasingly keen on including online betting provisions in their laws. The Rhode Island legislature even went back and expanded its new law less than a year after passing a retail-only version.
All of that bodes well for the future of sports betting in the US, and for the bottom line. It seems at least possible that the bet that clears the $20 billion milestone could be booked around March Madness this spring.