[toc]It can get really complicated, really fast when the American Gaming Association and other advocates for legal sports betting start tossing around numbers and statistics.
How much illegal betting is there?
The numbers behind US sports betting revenue estimates, like the country’s deficit, are hard to grasp due to their sheer size. This is further complicated by the frequent transitions between sports betting handle, the amount wagered by sports bettors, and sports betting revenue — the amount of money sportsbooks generate from those wagers. Keep in mind that these two metrics can vary by as much as a factor of 20.
Confusion really sets in when these numbers are extrapolated to ascertain the size of the illegal sports betting market. Due to its underground nature, the size of the illegal sports betting market is hard to pin down, as I’ve seen estimated anywhere from $80 billion to $380 billion in handle, and revenue estimates of $1.6 billion to $11.9 billion according to GamblingCompliance.
This wide spread in the numbers is more than enough to confuse the average person. Is it a $1.6 billion industry, or a $380 billion industry?
So, exactly how big is the US sports betting market? That’s an interesting question, and one with no good answer.
The GamblingCompliance estimates
GamblingCompliance gave three revenue estimates (paywall) based on three different US sports betting models, with a ceiling of $11.9 billion and a floor of $1.6 billion.
It’s important to note that these are not bullish and bearish estimates. GC used different models to gauge the potential size of the market. In fact, Gambling Compliance’s analysis for the biggest number assumes sports betting is legal almost everywhere nationwide and online, which is fine if we’re conducting a theoretical exercise to find the ceiling.
However, it doesn’t really help us determine what the actual size of the market will be.
Why almost $12 billion in US revenue isn’t very likely
As noted above, the Gambling Compliance report offers a look at the potential size of the US sports betting market under ideal conditions, but it doesn’t account for several factors that will hinder the legal sports betting market in the US.
The slow legislative process
Most notably, even if sports betting were to be green lighted at the federal level, actual legalization (along with prohibitions) will occur in statehouses, and this will be a very long drawn out process. A few states like New Jersey, New York, and Pennsylvania may jump at the opportunity to add sportsbooks. But most states would take a more conservative approach to legalizing sports betting; an approach that would likely take multiple years.
Additionally, some states will simply pass on legalization; some may decide that prohibition is the better option.
It’s not a stretch to conclude that a number of states will continue to prohibit sports betting. Whether legalization occurs on a state-by-state basis or at the federal level, there will be states that continue prohibiting sports betting, just like they prohibit other forms of gambling.
States likely to opt out are Utah, Hawaii, Washington, Louisiana, Alabama, and Arizona; even DFS operators fear most these states’ strict anti-gambling laws. And if even one large state, such as Texas, decides to opt out along with the usual suspects listed above, some 15 percent of the US population (around 50 million people) would live in locales without legal sports betting.
Flaws in using the European model
Europe certainly provides us with a road map for what legalized sports betting would look like in the US, but there are two key differences between Europe and the US that need to be addressed.
First, without online sports betting (which is included in GC’s high-end estimate of $11.9 billion) access to retail locations, let alone casinos, will be limited in sparsely populated areas. That is something the US has an abundance of, unlike the more densely populated European countries.
Second, legal sports betting has long been part of the European culture, but in the US it would be an altogether new experience and would take some getting used to.
It will take several years at least for the traditional black-market bookies to be tossed aside in favor of legal retail outlets. Anecdotally, most people I know who bet sports know their bookies personally, and have a good relationship with them. This familiarity and trust could stunt the growth of the legal industry for many years.
Strict online regulations
As we’ve seen with online gambling in New Jersey, Nevada, and Delaware, licensed online sports books would have to adopt a number of strict regulations that can be off-putting to some customers.
Everything from responsible gaming policies that limit deposits to intrusive player verification background checks will likely keep black-market bookies and offshore sportsbooks in action.
The takeaway: Problems lie ahead for legal sports betting
If legalization means sports betting is available at land-based casinos, retail locations and online, the US sports betting market definitely has a ceiling of $11.9 billion.
But outside factors, from state prohibitions to strict regulations and oversight, will almost certainly keep the market from ever reaching its full potential.