The Amazing Growth of the U.S. Sports Betting Market

In May 2018, the time had finally arrived for the United Supreme Court to erase the nation's ban on sports betting. It no longer made sense to keep the ban in place with Americans going offshore with billions of wagering dollars. States like New Jersey were quick to point out that those wagering $$$ could convert to tax revenue at the state level if the ban was lifted.

Indeed, the ban was lifted on May 18. That was the day that legalized sports betting became a state-controlled issue. The response was immediate as states like Delaware, New Jersey, and Pennsylvania were ready to strike with the appropriate sports-betting legislation later that year.

Today, a total of 39 states have passed some form of sports-betting legislation, be it retail, online, or a combination thereof. Of the 11 states that have not yet decided on the issue, Alabama, California, Missouri, and South Carolina are in the process of considering some form of legislation. It's worth mentioning that states like Hawaii and Utah will probably never allow sports betting or any other form of retail/online gambling.

As the U.S. sports betting market matures, the numbers are starting to pop. At this point, it's safe to say that U.S. sports bettors have responded with aplomb, pushing billions of dollars through betting windows. Let's take a look at where the market is today and where it might be headed in the future.

By the Numbers

Before the SCOTUS released the nation's ban on sports betting outside of Nevada, analysts were reporting that U.S. sports bettors were wagering $5 billion to $8 billion a year on sports. To be clear, that only included what was being wagered through offshore sportsbooks. If illegal wagering with local bookies was thrown into the mix, analysts felt obliged to add another $5 billion to their estimates.

Obviously, it's difficult to confirm those numbers. Insiders were predicting the numbers were on the light side. Regardless of which numbers reflect reality, it was clear the time had come to release sports bettors into a viable U.S. sports betting market.

Keeping in mind that New Jersey and Pennsylvania passed sports betting legislation in late 2018, the first states to do so, the tracking of sports betting "handle" in earnest starts in 2019. Note: the term handle refers to gross sports wagers. Here's a look at the reported sports betting handle by year since 2019 (*1):

2019 = $12.1 billion
2020 = $21.6 billion
2021 = $53.7 billion
2022 = $93.7 billion
2023 = $121.0 billion
2024 = $70.9 billion through June

Here's a further look at the gross sports betting revenue (gross profit) (*2) held by retail and online bookmakers during the same years:

2019 = $0.9 billion
2020 = $1.5 billion
2021 = $4.3 billion
2022 = $7.5 billion
2023 = $10.9 billion
2024 = $13.0 billion (estimate)

The hold rate is the percentage of handle that bookmakers keep as gross profits. The hold rate gives an indication of how well bookmakers are doing versus sports bettors. A hold rate of about 7% is considered standard. Here's a look at the hold rates by year for the same years:

2019 = 7.4%
2020 = 6.9%
2021 = 8.0%
2022 = 8.0%
2023 = 9.0%
2024 = 9.2% (estimate)

Based on these numbers, U.S. retail and online bookmakers should be thrilled. They are putting a pretty good lick on sports bettors. If one were to guess why bookmakers are doing so well, it likely has to do with the sophistication of the typical U.S. sports bettor.

In Europe, sports bettors tend to have more experience with the process. They bet mostly on European football (soccer), and novice gamblers tend to bet very small due to limited bankrolls. In the U.S., recreational sports bettors are unleashed. They have no problem placing large wagers on their favorite teams while making little effort to handicap games. Sais bettors are excited about the opportunity to bet and the bookmakers are thrilled with the results.

In aggregate, the numbers provided above offer a clear vision of how explosive the growth has been in the U.S. sports betting market over the first 5+ years. With the gross revenue by 2030 estimated to be close to $27 billion, it's all systems go for sports betting in the U.S.

Fun U.S. Sports Betting Facts

The tell of the tape lies in the details. After 5+ years of legal sports betting, certain trends have been exposed. To capture these trends, here are a few fun facts that are worthy of consideration:

- Each year, the numbers for the months of September through January are consistently larger than the spring and summer months. That's a clear indication U.S. sports bettors heavily favor betting on college and pro football games.

- January is typically the biggest sports betting month due in large part to the college football bowl games and the NFL playoffs.

- The week of the Super Bowl is always the largest sports betting week of the year.
New Jersey ($52 billion), New York ($48 billion), and Nevada ($41 billion) ranks as the nation's top 3 sports betting states based on the handle. For a little extra perspective, New York did not legalize online/mobile sports betting until mid-2021. Clearly, New Yorkers are the nation's most avid sports bettors.

- Delaware of all states has the highest hold rate at 18.0%, followed by Montana at 13.2%.

- Approximately 88% of all legal U.S. sports bets are made through online sports betting platforms. The biggest online operators in the industry are BetMGM, Caesars Sportsbook and Casino, DraftKings, and Fanduel.

- Through legislation, each state has stated its own effective tax rate to be charged on gross revenue. The current tax rates run from as low as 8% to an astronomically high of 51% in New York. The general consensus among most states is 10%-12%.

- In each state, sports bettors must be at least 21 years of age. If they intend to use an online/mobile sports betting platform, they must log in using an IP address that is assigned to the state in which they registered. Operators are required by law to track customer locations with the latest in geo-tracking software technology.

- All retail and online operators are required to be licensed in each state in which they are offering sports betting services.

- If a sports enthusiast lives in a state where sports betting has not been legalized, there is a good chance they can drive to a neighboring state that does permit such activities. In most cases, they will be permitted to open retail and online/mobile betting accounts with one caveat. They will still need to be physically present in that state when interacting with the operator.

- In Florida, all sports betting (retail and online) is controlled by the Seminole Indian Tribe. The Tribe secured the right to offer sports betting after three (3) long years of legal challenges from other interested parties.

Current Legislation

The gross sports betting projection of $27 billion by 2030 assumes that California, Missouri, and Texas will eventually pass sports betting legislation. While Missouri might well get something done next year, the other two (2) states face significant challenges to getting something done.

In California, the legislature is beholden to an Indian compact that gives the state's Tribes the right to control most forms of gambling. They have been reluctant to consider offering sports betting for fear they would savage the revenue stream that comes from their retail casinos.

In Texas, religious influences are currently ruling the day. The best chance for Texans to bet on sports from home one day depends on the backing of major sports teams. They have that backing so maybe something will get done soon.

When all is said and done, sports betting in America should continue rising into the foreseeable future.

Sources:
*1 = https://www.legalsportsreport.com/sports-betting/revenue/#:~:text=The US sports betting industry is in its,revenue from over %24375 billion in total handle.
*2 = https://www.statista.com/chart/29332/gross-gaming-revenue-from-sports-betting-in-the-us