The young US sports betting industry marks another milestone this week, and it is a big one.
Five years ago, the Supreme Court repealed the Professional and Amateur Sports Protection Act (PASPA) to end the decades-long Nevada sports betting monopoly. The Court returned to individual states the authority to legalize and regulate sports betting within their own borders, which Congress had unlawfully revoked in 1992.
What followed that May 2018 decision has irreversibly changed the sports and gambling landscape in this country. Betting is now fully embedded in American sports culture, and the amount of money flowing through the industry economy is downright staggering.
Doing it for the culture
Gambling has permeated the whole universe of sports content, from local radio shows to the national Super Bowl broadcast. Advertisements dot billboards in sports stadiums and transit stations and prime locations like Times Square. Teams, players, celebrities, and influencers are all cashing in with endorsement deals.
This rise of legal sports gambling has driven a massive influx of new revenue for the first movers in what has already become a multi-billion-dollar business. We focus here on the raw performance of this emerging industry.
Happy birthday, legal US sports betting. Let’s run some numbers.
US sports betting expansion
Any conversation about US sports betting starts with a look at the unprecedented pace of expansion.
Since the repeal of PASPA, 32 states outside Nevada launched legal sports betting via either bespoke legislation or updated tribal compacts. That is a remarkably brisk pace for legalizing and regulating such a complicated product.
Three more states have laws on the books pending launch: Kentucky, Maine, and Nebraska. The governor of Vermont has a bill on his desk that he is likely to sign into law too. Those additions will leave just 13 states without regulated sports betting.
The legal industry has spread to all but four markets east of the Mississippi River, the four in the far southeast corner of the map. The District of Columbia and Puerto Rico both have legal sports betting too.
Available across the board
Over this five-year period, regulated sports betting has become legally available to almost 60% of American adults.
It is hard to think of any other issue or industry that has achieved such broad availability in such a short time in an often-divided nation. Cannabis is recreationally legal in 22 states, for comparison, and only 18 states have passed laws to protect same-sex marriage.
Sports betting is meanwhile on the books in red states and blue states alike.
US sports betting by the numbers
The reporting schedule means that our financial picture of the industry is a month or two behind the calendar. So with about 58 months of data, here is what operators have churned out since Delaware opened the broader US sports betting market in June 2018:
- Handle: $222 billion
- Revenue: $17.6 billion
- State tax: $3.05 billion
What we call taxes includes contractual revenue-sharing agreements with local governments in some jurisdictions, both tribal and commercial. A federal excise tax of 0.25% additionally applies to all commercial wagers.
To date, those payments to the IRS total more than $550 million. Some US lawmakers have called on their peers on Congress to sunset this excise tax.
Tribal figures not always included
Official data does not include retail tribal operations, so the true numbers are slightly larger than reported. Five states with tribal sportsbooks do not report any data at all: New Mexico, North Carolina, North Dakota, Washington, and Wisconsin.
Tribal data is also incomplete in states with mixed industries like Michigan and Colorado. These unreported contributions to the industry are smaller, as they are retail operations.
Check out our US sports betting revenue tracker for the most up-to-date monthly numbers.
Digging into the data
New Jersey has been the gold medalist of the first five years of sports betting in the US. Recall: it was the underdog that challenged PASPA, and it wasted no time profiting from its repeal.
New Jersey was the third state to open its legal sports betting industry, launching retail operations in July 2018 and online apps two months later. By May 2019, it was starting to produce more volume than Nevada on a monthly basis. By April 2021, it had taken over the running lifetime lead and relegated the Silver State to second place.
Even with the benefit of hindsight, that was an impressive feat on a quick timeline.
The Jersey effect on US sports betting
To date, operators in New Jersey have combined to generate more than $2.6 billion in revenue on more than $36 billion in total wagers. It was the first state to reach the $20 billion and $30 billion handle milestones, and it was the first to reach both $1 billion and $2 billion in revenue.
Looking at a graph of state performance over time provides some visual context for New Jersey’s success.
It’s up to you, New York
New York will be the first state to reach most future milestones.
It got a late start, waiting until January 2022 to launch online sports betting amid some long-standing legislative complications. But you can see the shape of its line in the chart above without even needing to search the legend; it is the steepest.
Online sports betting shot out of the gate at full gallop in New York, producing more than $21 billion in handle and $1.8 billion in revenue through its first 16 months. With 20 million residents and a workable framework for the local industry, it is capable of posting numbers that no other state can match for now.
New York moved into third place on the post-PASPA leaderboard in April, and its string of big months puts it on pace to dethrone New Jersey by 2026. Its unmatched 51% tax rate also means that it has collected nearly $1 billion in tax revenue, more than twice as much as any other state.
Don’t forget your promos
It is worth noting that much of this early betting volume has been fueled by the operators’ own money. That is, the leading operators have spent an unrelenting amount on sign-up bonuses, odds boosts, and other promotions designed to help them acquire and retain customers.
Through the first five years of widespread legalization, these promotional bets amount to perhaps as much as 2% of all handle nationwide. That might not sound like a ton until you think about the raw numbers. Two percent of $220 billion is close to $5 billion.
Spending has cooled in recent months, however, as more markets settle into maturity and operators seek to establish their path to profitability. LSR recently explored how the dynamics around operator margins are changing as we head into the next era of US sports betting.
The rise of online sportsbooks
Zooming out a bit, the overall success of the national industry hinges on the rapid adoption of online sports betting.
Nevada’s sports betting market circa 2018 was split evenly between in-person and online betting, but the repeal of PASPA immediately ushered in a new era for the industry. More than 85% of all post-PASPA wagers have been placed online, and the retail slice of the pie continues to shrink over time. For 2022, the online share of betting was around 92%.
New York provides a particularly stark example of the adoption of online betting.
Its four commercial casinos are remotely located upstate, and capture less than 1% of all betting potential in the state. The first week of legal online betting in 2022 generated more handle and more revenue than the preceding 30 months of retail betting combined.
Arizona, Illinois, Ohio, and Colorado also have online splits above 95% for their local industries, while Tennessee, Virginia, and Wyoming are currently online-only markets.
Reconsidering retail sportsbooks in US sports betting
COVID also played a role in the adoption of online betting in the US, particularly in markets where land-based casino operations were interrupted by pandemic-related shutdowns.
New York is on that list too. It and a number of other states (notably Illinois) either legalized or accelerated their timeline for online sports betting with the financial impacts of COVID in mind.
Three commercial sports betting states still do not allow online betting at all: Mississippi, Montana, and South Dakota. They are unsurprisingly the three smallest markets in the country in terms of volume.
FanDuel vs. Draftkings, Part Two
The early mix of US sports betting operators provides another fascinating storyline that is still being written. And the rise of online betting created the conditions for success for a crop of younger, more tech-savvy gaming companies.
Enter FanDuel and DraftKings, the two dominant forces in the fantasy sports space.
After years spent testing the legal limits of fantasy sports as a game of skill — and building a technologically robust gaming product with broad appeal — the fall of the federal sports betting ban opened a new world of opportunity in gambling.
Powered by product and driven by their database of existing customers, the two DFS giants have today become the runaway leaders in regulated sports betting. Depending on how you measure, they combine to account for close to two-thirds of the entire US business today. FanDuel alone is responsible for approzimately 40%.
Domination nation for DFS leaders
In retrospect, this result seems obvious.
The fantasy sports empire was built from the same blueprint, with FanDuel and DraftKings traveling from state to state to lobby local lawmakers directly. They knew the advertising game as well as anyone, and their brands were already in the minds of sports fans because of their relentless efforts to promote DFS. They already proved that they are willing to spend enormous amounts of money on marketing and acquisition.
The DFS days were a trial run for sports betting in ways that we are still coming to appreciate in 2023. And the efforts of the leaders in that bygone era of sports gaming have secured some rich rewards in this new one.
FanDuel and DraftKings have together generated more than $100 billion in handle and around $10 billion in gross revenue since their entry into the industry in 2018.
Where are legacy casino companies?
Hindsight aside, the emergence of FanDuel and DraftKings as the lone primary players in US sports betting comes as quite a surprise. Most expected traditional brick-and-mortar casino companies to expand their existing gambling operations and swallow up the rest of the states too.
That has not materialized.
MGM was well-prepared for the possibility of expanded online gambling, with its BetMGM brand already among market leaders in the few states with legal online casino gambling. BetMGM is the most successful of the legacy gambling brands in this new digital era, leading in online casino but still only third-best in online sports betting.
Hail Caesar?
The effort from Caesars has made less of an impression, including a costly acquisition and rebrand of William Hill that has failed to improve its national performance to date. It is the fourth-biggest operator in the country by the numbers, but the gap between it and BetMGM is growing larger over time.
Bally’s and Wynn are similarly struggling to make a national impact with their Bally Bet and WynnBet brands. And an expensive decision by Penn Entertainment to pair theScore Media tech stack with the Barstool brand for its sports betting operation is not yet paying dividends either.
In broad strokes, the established casino leaders have fallen behind in the expanded sports betting industry. It seems fair to surmise that they would not perform as well in Nevada if they had to compete on equal terms with FanDuel and DraftKings there too, as archaic registration rules keep those brands out of the Silver State.
US market dynamics still shaking out
The willingness of market leaders to spend heavily on acquisition has so far made the industry an inhospitable place for newcomers. But those days may be coming to an end as shareholders of these public companies start to set their sights on long-term profitability.
FanDuel and DraftKings face no real threat at it stands today, but we are still in the first or second inning of this game. Younger, smaller operators are still trying to find their footing, while some big would-be disruptors continue to store up potential energy for an expected push in the coming years.
Fanatics Sportsbook is just now arriving to the party, entering fashionably late with a pocket full of cash and a huge database of customers. Fanatics’ core business of licensed sports memorabilia gives it some differentiated cross-selling opportunities, and it hopes to launch its new sportsbook platform in as many as 15 states before football season.
With or without a rumored PointsBet acquisition, Fanatics certainly has the resources to shake up the current dynamic.
The giant across the pond
Then there’s bet365, the biggest bookmaker in the world. The UK gambling giant did not make a serious attempt in the US until this year, active today in just four states. Given its recent ramp-up in Ohio, however, it looks like it may finally be waking from its slumber. It too has the financial resources to compete with the current US leaders, and the bet365 product is at a best-in-class level.
There’s a very real possibility that we’re talking about one of those companies as the market leader when we do this again in another five years — or perhaps someone not even on our radar yet. For as big of a lead as FanDuel and DraftKings have built, they are far from untouchable.
What’s left in US sports betting tank?
Prognosticators imagine this US sports betting market having perhaps $25 billion in annual revenue potential at full maturity, and it is not hard to identify some areas for future growth.
The map is the primary one. While it has filled in dramatically with legalization since 2018, a few huge holes remain.
- California: It is a complicated state in so many ways, but tribal dynamics thwart legislative progress in California. Most notably, an effort to legalize commercial online sports betting via a voter referendum in 2022 failed miserably at the ballot box. The nation’s most-populous state remains closed to legal sports betting, and there is no indication it could open anytime soon.
- Florida: Tribal complications have also stalled efforts in Florida, though it did have “legal” sports betting for a few weeks in 2021. The Seminole Tribe briefly opened retail sportsbooks under the terms of an updated compact before a federal court nullified that agreement. The matter is still tied up in litigation, the results of which will determine the future prospects of sports betting in the Sunshine State.
- Texas : Momentum has seemingly begun to build in Texas, with local sports teams unifying in support of a framework that gives them the keys to the kingdom. Getting a bill through the House this year marks a huge step forward, but full legalization is still beyond the horizon for now. If it doesn’t get done in 2023 (and it doesn’t look like it will), Texas lawmakers will not consider sports betting again until 2025.
Any one of those markets would likely supplant New York atop the national leaderboard, and adding all three to the mix would come close to doubling the total output of the US sports betting industry.
A story of continued growth?
Beyond any expansion on the map, continued investment and innovation in product will provide much of the fuel to power the next phase of growth.
Browsing legal operations in more-mature global jurisdictions tells us that product is still a growth opportunity in the US. As operators build out platforms that are more appealing to more customers, numbers should continue to grow.
US sports betting policy library thoughts
There are also some policy points to think about.
Several states that initially launched retail-only sports betting since revisited their laws to add online authorization. Beyond New York, Arkansas and Rhode Island followed a similar two-step path to modernization. It is certainly possible that other retail markets like Mississippi could add online betting to bring their local industries into the digital era, though previous attempts failed.
That being said, the majority of expansion in both policy refinements and overall legalization is behind us. With operators becoming more concerned about their bottom line, it is fair to assume that the next five years will be marked by slower growth rates as the overall goal of creating a sustainable industry comes into focus.
