- Sports Betting
- NJ Sports Betting
- PA Sports Betting
- Indiana Sports Betting
- US Betting
- LSR Podcast
None of those characterizations of either of these industries are remotely true. And those are hardly the only instances of such mischaracterization occurring.
Why does this happen, and why is it a problem?
For all of the references above, the writers are conflating handle and revenue for the industries.
Handle is how much money bettors/DFS users spend on wagers/entry fees.
For sports betting, illegal offshore handle is estimated at around $150 billion. (Past estimates have put it as high as $400 billion, although in truth it’s difficult to estimate the amount of money wagered on the black market.)
These are far different than revenue for sports betting and DFS, which are only a fraction of that figure.
Revenue can be variable in sports betting, but unless the oddsmakers are really bad at their jobs, they should be able to count on net positive revenue on an annual basis. Sometimes the books will pay out more on individual bets than they win, and sometimes vice versa. In Nevada sports betting, sportsbooks generally hold just under five percent of handle, according to data from the UNLV Center for Gaming Research.
At DFS sites, they take a cut of all entry fees. That revenue equates to about 10 to 15 percent of handle. In 2016, Eilers & Krejcik Gaming reported that figure to be in excess of $300 million.
Revenue is fairly predictable in DFS, unless sites’ guaranteed contests run overlay (where prizes paid exceed entry fees). FanDuel and DraftKings usually avoid that scenario these days.
First off, the “handle” figure is a lot sexier. Hundreds of billions! Billions!
It also just represents a fundamental misunderstanding of the industries, and how they work.
In other industries, the money that companies “handle” is generally the same as revenue. If you pay a company for a good or service, that money is in turn used by the company to buy product, pay employees, etc. (Profit is another subject we won’t even get into here.)
The money, or handle, that flows through sportsbooks and DFS operators is fundamentally different. It’s simply money that is “handled” for a time by a book or DFS site before it’s paid out. (Unless of course it’s just stolen from customers by a DFS operator.)
Handle can’t be equated to revenue in any conventional sense. Handle is a useful figure for determining volume and growth trends in either industry. But revenue is the money that goes into the sportsbooks’, casinos’ and sites’ pockets.
Why does it matter?
The biggest problem, in my mind, is that it sets up unreasonable expectations from states looking to regulate and/or make money from either industry. If anyone in Delaware thinks the state is getting a part of $3 billion from DFS, they’re in for a rude awakening.
Don’t get me wrong: There’s a huge opportunity for states that legalize sports gambling, and the casinos and racetracks that offer it. But if you start throwing around figures like “$400 billion,” politicians and others are setting everyone up for disappointment.
We saw this at work in New Jersey, where Gov. Chris Christie said he expected legal NJ online casinos to generate a billion dollars in his state in half a year after launch in 2013. This was a ridiculous prediction; it took awhile to reverse the perception that NJ was anything but a huge boon for Atlantic City. (NJ online gambling continues to grow the market and generates more than $20 million a month.)
Sports betting provides revenue on its own. But the ancillary benefit of attracting bettors to land-based operations is also a big benefit.
Regardless, instead of overestimating the market — or mistakenly conflating revenue and handle — we’d all be better off if we just used the correct (and reasonable) figures.