In the post-PASPA sports betting legalization push across the US, there was a familiar refrain heard on legislature floors.
“Sports betting operators hold around 5% on average.”
That is certainly not the case any longer. Sports betting as a business has a much different look than sports betting as an amenity as it had been treated in Nevada, with the industry holding 9.15% in 2024.
Sportsbooks were hammered in Q4 2024 by extremely unfavorable NFL betting results, hitting books’ profits to the tune of tens of millions or more. The first quarter may not be slugged as hard by a chalky March Madness, but structural hold should help offset some or all of any potential dip.
Deeper offerings lead to higher profits
It didn’t take long to see that online sports betting would act differently from what was seen for years in Nevada. Sports betting hold was 7.01% in 2019 and has grown each year, taking off in 2022 when companies started to switch from growth to profitability.
That led to the largest jump yet of 1.03 percentage points in 2023 when the industry held 9.13%. The growth came from operators improving their products and expanding on their parlay options, which led to a stronger margin base that should prop up profits despite large result swings.
That growth came because operators gave bettors more betting markets and differentiated how those markets can be bet, which led to much deeper options for parlays and in-game betting.
Top ops tout structural hold in Q4 earnings
Flutter was the hardest hit by the historic run of NFL favorites this season, saying gaming revenue was impacted by $643 million with adjusted EBITDA down $260 million. Along with the scale of FanDuel’s parent company, the improvements to structural hold led FanDuel to a structural gross revenue margin of 14.5%, a 1 percentage point increase to the new record.
DraftKings saw similar results, saying structural hold exceeded expectations by growing 0.8 percentage points to 11.2% for the fourth quarter. That was driven by the mix of NFL parlays growing more than 6 percentage points over the prior year.
Those two are hoping for similar trends from the first quarter. Jordan Bender of JMP Securities expects both DraftKings and Flutter to miss its US online gaming forecasts because of March’s results.
He forecasts that March results will hit EBITDA to the tune of $75 million for DraftKings and $110 million for Flutter.
March Madness chalk to stay?
There were no Cinderella runs during March Madness this year. The chase for a perfect bracket ended within hours for most, with 99.9% of brackets taking at least one loss in day one, according to Yahoo.
While some are arguing this could be the impact of players getting paid through NIL deals and an open transfer window, DraftKings Director of Sports Johnny Avello told LSR it does not necessarily mean sportsbooks need to change tactics.
“You don’t want to put a lot of stock in it; you just go off what your model tells you, stick with what you do, and then you hope that it all averages out,” Avello said. “Sometimes it doesn’t, for a particular period of time. That’s what we’ve been going through the last four months or so.
“But that’s fine. You just keep doing what you do, keep the bettors happy, and let them keep coming back and playing at DraftKings. Eventually, things will work out.”
