States are rushing to get out of ahead of a Supreme Court decision that would allow states to legalize sports betting. However, lawmakers are not doing their due diligence, something that could bring about some very negative repercussions.
For instance, one of the bills introduced this week, the sports betting bill in Illinois, makes some rather astonishing claims.
The legislation introduced by Sen. Don Harmon reads in part:
There are estimates that Americans spend $400,000,000,000 (that’s $400 billion) annually on illegal sports betting.
Industry experts estimate that a licensed sports betting market in the United States will have revenues of between $175,000,000,000 and $225,000,000,000 (that’s not a misprint, that’s billions again) annually.
The first statement is what I would call wishful thinking. The $400 billion number has been around for a while. But every serious analyst finds that estimate overblown.
To put it into perspective, in order to reach $400 billion in handle every man, woman, child, and licensed dog (there’s about 70 million of them) would have to wager about $1,000 a year on sports.
As out of touch as the handle number is, it pales in comparison to the 12-figure revenue projections.
The notion that $400b in handle would translate into $175b-$225b in revenue is Lieutenant Frank Drebin–level absurdity. Nevada sports books revenue is typically about five percent of total handle. The projections in the Illinois bill would necessitate revenue that is 50 percent of handle.
The $400 billion on handle has been floating around for awhile and has been reined in. The revenue figure is the bad/new part.
— Dustin Gouker (@DustinGouker) January 31, 2018
There are zero experts that think there is $200 billion in revenue coming from sports betting.
— Dustin Gouker (@DustinGouker) January 31, 2018
What are the real numbers?
The reality is, no one really knows how big the US sports betting market is or will be. But it’s a pretty safe bet it’s not $400-billion-in-handle big.
A more realistic forecast for handle puts the US market somewhere around $200 billion. Actual revenue (based on the typical five percent Nevada sports books generate) would be around $10 billion.
According to more detailed research conducted by Eilers & Krejcik Gaming, annual revenue in a 50-state US sports betting market would fall in the $7.1-$15.8 billion range. That equates to $150-$300 billion in handle.
And that’s the bullish case for nationwide sports betting with ideal conditions.
That won’t happen.
Some states resist legalization efforts. Other states will pass legislation but handicap operators with excessive tax rates or burdensome regulations. Still others will limit where and how (online?) people can place bets.
Out-of-touch expectations nearly derailed online gaming in the US
It might be convenient to simply laugh off and snicker at the Illinois projections. When misguided figures are used to make policy it can have a negative, lasting impact though.
When New Jersey legalized online gambling in 2013, then-Governor Chris Christie decided to take the highest mature market projection ($1 billion by Morgan Stanley), add 20 percent just because, and use that as a Year 1 projection.
The result was an industry that underperformed Christie’s $1.2 billion Year 1 forecast by over $1 billion.
Even though analysts have righted their online gaming projections for other states, opponents of online gambling will caution any lawmaker willing to listen that the estimates cannot be trusted. They then point to the “failure” of New Jersey to meet its revenue projections as empirical evidence.
Think about that for a moment. By every legitimate metric, New Jersey is an unbridled online gaming success story. Yet it still has trouble shaking off its inability to meet unattainable Year 1 projections.. And antagonists have used that talking point to curtail online gaming efforts in other states, setting legalization efforts back multiple years.
Are you talking about handle or revenue?
Because sports betting uses two separate metrics, handle (the amount of money wagered) and revenue (the amount of money the sports book generates) these projections can be completely mucked up by people not familiar with the difference.
That seems to be what occurred in Illinois.
Using the $400 billion in handle estimate can be forgiven,. Confusing handle with revenue cannot.
When a lawmaker puts forth a bill that projects sports betting revenue at 50 percent of handle, it demonstrates a complete lack of understanding of the sports betting industry.
Even if you want to argue that under ideal circumstances, nationwide sports betting could result in $400 billion in handle, it won’t result in $175-$225 billion in revenue. The number the bill is looking for is $17.5-$22.5 billion, which is around five percent of total handle.
That’s still a very high estimate, but at least it’s in the realm of reality.