The winners from legal US sports betting are not only the lucky punters who hit six-figure wins from small bets on bizarre accumulators. Since the Supreme Court overturned PASPA one year ago in May 2018, sports betting has become a fast-growing industry.
It includes many players, large and small, all hoping to cash in on the trend. However, not all can win. Like the dot-com frenzy of the 1990s, many of the major players went bust.
But who will win in the race to establish sports betting across the US and who will lose?
From a cast that includes casinos, sports leagues, broadcasters, tech companies, payment processors, advertising companies, state lotteries and affiliates, we choose three big winners: The citizens of gaming states, the states themselves and the sports betting operators.
(The losers we leave to a second article.)
The sports betting states
Montana Gov. Steve Bullock signed H725 into law on May 3. On May 8, Indiana Gov. Eric Holcomb followed suit, signing H105. Then, on May 13 came Gov Kim Reynolds‘ signature legalizing sports betting in Iowa. That brings the total number of states with legal sports betting up to 11.
But each state is doing it their way. Different structures, different taxes, some markets more open than others, and inevitably, some will do better than others.
Only seven of these states have sports betting up and running with financial figures available for comparison. So far, the two states that are the big winners are New Jersey and, surprisingly, Nevada.
Nevada has been in the game a long time. It was exempt from PASPA as its existing sports betting laws were grandfathered in, allowing it to be the only state with legal sports betting (other than horse racing) for decades.
As the monopoly state of sports betting, Nevada could have been the one with most to lose from the competition.
It is notable how many of the new sports betting states are eastward. New York will probably add to the numbers in short order.
Any concerns for that movement are not showing up in the numbers. Nevada keeps hitting record figures for total sports betting handle and March Madness gave Nevada another record with almost $600 million in total bets placed.
That follows new records in January and February. Nevada is one of the winners from legal sports betting.
It is not a new winner, but if there is enthusiasm for sports betting in the East, then the wind is blowing toward the West and Nevada sports betting is smelling of roses.
New Jersey fought to overturn PASPA and won. It is only right that it should garner the spoils of victory. And boy, is it doing so. Since the placing of the first legal sports bet in June 2018, New Jersey generated sports betting handle of $2,251,237,623. The sportsbooks have enjoyed revenues of more than $157 million.
In the first quarter of 2019, the state treasury benefited by $6 million in gaming taxes on sports betting. That doesn’t sound like a whole lot of money.
Ohio Sen. John Eklund (R), who introduced sports betting legislation in his state, said:
“Everything I’ve seen so far suggests that this would not be what one would consider to be a pot of gold.”
He’s right, but the gambling tax revenues alone don’t tell all.
The NJ casinos have invested in creating new sports betting venues, upgrading old facilities and hiring new staff to serve new customers. Tens of millions of dollars are pumped into the local economy to support the new sports betting facilities — a proportion of which also goes in tax.
Alongside the new employment comes the cross-sell. New sports bettors in casinos also spend on restaurants and entertainment, hotel rooms and leisure facilities. They also spend on other gambling activities.
The March 2019 figures from the Division of Gaming Enforcement (DGE) showed online casino revenues of $39 million; March 2018 figures were almost half that.
Cross-selling from sports bettors is a big part of the reason, and the gambling taxes on casino games are higher than they are for sports betting.
Will the other sports betting states do as well?
New Jersey is a big winner from legal sports betting, but its success was not a foregone conclusion.
The state has internationally low tax rates:
- 8% of taxable casino gross revenue
- 15% of internet gaming gross revenue
- 5% tax on casino and racetrack sports wagering gross revenue
- 13% tax on casino and racetrack sports wagering internet gross revenue
- 25% additional tax on sports wagering gross revenue and Investment Alternative Tax Obligations (which reflects 1.25% of gross casino revenue and 2.5% of internet gaming gross revenue)
It also authorizes a wide range of games, including online casino and poker and allows mobile gaming.
Players can sign up for online accounts without having to visit a casino and have access to a practical range of deposit and withdrawal methods. Regulatory and license fees are also at the sensible end of the spectrum.
The New Jersey market forces online operators to work with casino licensees, but allows each to have multiple partners. Atlantic City’s history means New Jersey has enough casinos to support a high level of competition and a plethora of new brands eager for market share.
None of the other states with legalized sports betting have gone for the full New Jersey solution.
Pennsylvania has ultra-high taxes, Rhode Island and Nevada require in-person registration for internet accounts. Delaware still has no online sports betting yet and, in Mississippi, the law doesn’t allow mobile or online gambling outside casino premises.
New Jersey’s approach provides the maximum possible benefits from state-regulated gambling. To win at legal sports betting, other states need to learn from the best, and the best is now New Jersey.
Sports betting operators
The distinct nature of gambling in each state means that many operators are competing for sports betting business. The industry is fragmented, with many regional players. That’s no longer the optimal structure as legal sports betting rolls out across the US.
US casinos almost completely control access to online sports betting, but online sports betting expertise is concentrated in the international operators. Only a few, such as William Hill Sports, have had any recent sports betting experience in the US.
Sports betting legalization also brings into play non-gambling operators — the sports leagues themselves and the broadcasters that deliver the fan base.
On May 9, the Stars Group (TSG) announced an expansive deal with Fox Sports in which the Fox Corporation is acquiring 4.99% of TSG. After buying Sky Betting & Gaming for $4.7 billion, TSG is putting broadcasting at the center of its customer acquisition strategy.
“The sports gaming industry is rapidly growing and Turner is poised to be an industry leader in the development of gaming-themed content experiences.”
At the moment, the industry is shaking itself out, preparing for the battlefield to come. Eventual winners and losers are hard to predict, but early success has gone to some unlikely names.
DraftKings and FanDuel
Live sports betting in New Jersey launched on June 14, 2018, at the Monmouth Park Racetrack. William Hill powered the operation and has benefited from early market entry.
But live sports betting is trivial compared to online sports betting. New Jersey added online sports betting on Aug. 6, 2018, when daily fantasy sports (DFS) operator DraftKings surprised everyone by launching the first mobile app.
The live sportsbook at Resorts pulled in only $85,105 in the same period.
But DraftKings lost its New Jersey crown in February this year after FanDuel partner, the Meadowlands Racetrack and PointsBet pulled ahead in revenues. They cemented their lead in March with revenues of $13.3 million — almost double their nearest competitor. And nobody else was even close.
The big DFS names are now and have been from the start, dominating the New Jersey sports betting market.
Well-designed and regulated, legalized gambling does one critically important thing: It shifts gamblers out of the black market and into the legal market.
The benefits of doing this are legion, including;
Moving revenues out of the black market
In the absence of the legalization of online gambling, US citizens use the internet to gamble at offshore sites. In almost all states, this is not illegal for the gambler.
It is illegal for the operator, under US law, but since the operators are based in places like Costa Rica and Panama, US law does not apply. When states legalize sports betting, a large portion of the revenues that previously went offshore remains in the US economy.
Protecting gamblers legally
Offshore sites are out of reach of US law. They can rig games, steal customer funds or use them for operating expenses. They can fail commercially, losing all of a customer’s money.
In each case, US sports bettors have almost no hope of recovering their money and no legal recourse against the operator. If a state-regulated operator so much as mistreats customers or puts out a misleading advertisement, the regulator is at hand to resolve the matter. Punters have legal recourse, generally without even having to go to court.
The regulatory procedures have dispute mechanisms with the regulators powerful enough to enforce decisions. Customers at regulated sites know that their deposits are safe and that the games they play are fair.
Providing support for at-risk gamblers
Only in a legal, regulated gambling environment can customers at risk of problem gambling be adequately protected. Regulators encourage operators to develop the technology to detect problem gambling early and to ensure intervention and support are locally available.
Gamblers can set loss limits, time limits and even exclude themselves permanently or only for a cooling-off period after either a big win or loss.
In New Jersey, some of the cash generated by the licensed gambling operators goes to fund problem gambling research.
The annual reports now produced by Rutgers University’s Center for Gambling Studies are building into a valuable resource for strategies to reduce problem gambling. The reports make recommendations that the DGE acts on for the benefit of all Jersey residents.
Creating a new tax stream for state governments
State finances are in a mess across the US. The big problem is pensions and medical care.
A recent report on Illinois’ problems by JP Morgan suggests that the state needs to spend 50% of all its tax income to fund the state’s government worker retirement benefits.
Illinois online gambling tax income can’t solve the problem for Illinois, but in many states, it can help close the gap. Forecasts suggest the New Jersey could soon be generating $200 million a year in tax revenues from sports betting.
New Jersey is not far behind Illinois when it comes to state finances, and $200 million a year is money that makes a difference.