From the moment that the U.S. Supreme Court repealed the Professional and Amateur Sports Protection Act (PASPA) on May 14, 2018, the U.S. sports betting industry has actually become an industry, rife with investment, research and development, mergers, acquisitions and everything else included in a typical MBA curriculum.
The manner in which sports betting has oozed across time zones and state lines has been similar to the way that ketchup comes out of a bottle, or how a tire goes flat, or how, as Hemingway said, one goes bankrupt—gradually, then very, very, quickly.
In the span of six short years, bookmaking has grown from a low-impact Nevada monopoly to a nationwide pastime, with a total of 39 markets (including Washington, D.C.) currently offering in-person or mobile betting, or both. Several more could also join the fray by the end of their respective legislative sessions, including Georgia, Missouri and Minnesota, and the lingering behemoths of Texas and California have long been circled as the next biggest targets beyond that.
Of course, this slapdash cavalcade has been borne out in the data, which is why the gold rush for licensure and expansion has been so cutthroat.
According to figures from Legal Sports Report, U.S. sports betting as a whole brought in $309.7 million in handle and $24.6 million in revenue in June 2018, the first official post-PASPA month; by January of this year, those numbers had jumped to $11.6 billion and $1.2 billion, respectively. In its recent State of the Industry report, the American Gaming Association announced that the sector tallied $10.92 billion in revenue in 2023, a new record and an impressive 44.5 percent increase from 2022.
Despite its respectable growth in the first few years of this new reality, however, this record jump is most easily attributable to the fact that the industry quite literally went full mainstream last year with the introduction of ESPN Bet and Fanatics Sportsbook, both of which cannonballed from the top rope with deeper pockets and broader influence than even the biggest operators could match.
Following a high-profile bidding war with DraftKings last spring, Fanatics, the merchandise and licensing giant headed by ebullient CEO Michael Rubin, scavenged the remains of PointsBet’s U.S. operations for $225 million in June, in addition to the company’s $250 million advertising deal with NBC. Then, in early August, Penn Entertainment announced it was eschewing its previous deal with counterculture kings Barstool Sportsbook in favor of Disney-backed ESPN Bet, investing an additional $1.5 billion in cash and $500 million in stock in order to do so.
The statement from ESPN Chairman Jimmy Pitaro following the announcement was, and perhaps still is, indicative of the symbolism behind both deals—Pitaro said the motivation to move into sports betting was “simple: to give fans what they’ve been requesting and expecting:” more action, not just from ESPN, but from anyone who can offer it.
All Bets are On
Now that the legal restrictions have been lifted and the snowball is careening down the mountain, sports betting is a completely acceptable and increasingly recognizable option for other businesses looking to leverage their expansive customer bases in the name of diversification—especially those with any plausible connection to sports.
“Broadly, sports betting is a business that fits nicely alongside a variety of businesses,” explains Chris Grove, partner emeritus at Eilers & Krejcik Gaming. “The casino business is chief among them, but media, collectibles, merchandise and other sports-related businesses have meaningful and profitable ways to intersect with sports betting.”
Due to the fact that no gaming analyst, even after PASPA was toppled, would have ever predicted the introduction of fairytale brands like Disney into the betting landscape, the race for market share is still very much alive. FanDuel and DraftKings may comfortably hold the top two spots as of now, but neither has billion-dollar media rights deals or uniform contracts with all major U.S. leagues to help make up for game-winning baskets or backdoor covers.
Because of this influence, Grove contends that we are “still very much in the early chapters of online gambling in the U.S.,” adding that the “long-term dominance of FanDuel and DraftKings is far from assured.”
Braden Mark, the U.S. travel, leisure and hospitality sector leader for KPMG, echoes these bullish sentiments.
“Sports betting in the U.S. has become a multibillion-dollar market and is projected to grow enormously in the next few years, leading many different players to consider entering the market or expanding their current platform,” he says. “Businesses with tertiary products in the sports and entertainment world, but not necessarily gaming, are looking for ways to leverage their customer base, products and services in order to take market share and be a part of the overall sports betting marketplace.”
Mark also agrees that although “the top two spots are somewhat established and unlikely to be disrupted anytime soon,” there is still “opportunity for other players to take market share.”
All factors considered, the industry’s meteoric growth and its infusion of high-influence brands have certainly done well to cultivate a potent deal-making environment, but the mainstream-ification of sports betting has also guided players away from black-market and offshore sites, which all licensed operators—even the ones struggling to maintain market share or losing it altogether—would agree is a positive business development.
“There’s no question that we have been able to migrate literally tens of millions of Americans who previously only had the illegal marketplace as an option for sports betting in the last five years,” AGA President and CEO Bill Miller told GGB during the association’s State of the Industry press conference.
“We are migrating Americans into the safety of consumer protections of that legal marketplace by the tens of millions, and I think that will be further as we continue to bring in stronger brands. But the illegal marketplace is not going anywhere because we need to figure out how we can better understand where they are and how to stop them.”
This Town Ain’t Big Enough
At this stage it must be noted that as with any burgeoning and competitive industry, the growth of U.S. sports betting has inevitably resulted in losses and departures to coincide with the gains and headlines—as hedge fund guru Ray Dalio has often pointed out, one man’s spending must be another’s income.
The list of exits is perhaps longer than most bettors realize, given that they often go quietly into the night. Some, like PointsBet U.S. and Barstool Sportsbook, are flipped and rebranded, while others simply cut their losses while they can. Some were not-so-memorable examples of non-gaming entities trying their hand at diversification, such as Maxim Bet, Fubo Sportsbook and FOX Bet. Even experienced and highly respected gamers have had to face the harsh realities of increasing marketing spend and customer acquisition costs, with Churchill Downs’ TwinSpires and Wynn’s WynnBET being two notable examples.
“We’ll inevitably see consolidation and deconsolidation in the U.S. online industry, much as we have in the U.S. retail casino industry and in the international online gambling industry,” Grove contends.
He adds that “most, if not all, of the brands that aren’t going to survive that first cut have exited at this point,” with the key words being “first cut”—-the number of additional waves yet to come is impossible to say just yet, given a host of factors, including an ever-changing regulatory landscape.
Sports betting is inherently a low-margin business, especially when compared to land-based and online gaming, which is why it makes sense for established operators to focus on those efforts if they feel that the risks of bookmaking outweigh the benefits. However, when a difficult path to success is beset with increasingly high tax rates, that hikes up the difficulties to a new level.
In the densely populated Northeast, New York, New Hampshire and Delaware all carry online rates of at least 50 percent; Pennsylvania is not far behind at 36 percent for both verticals; in the Midwest, once-darling Ohio quietly doubled its levy from 10 percent to 20 percent last year, and mere weeks ago, Illinois Governor J.B. Pritzker’s latest state budget pitch included a proposed hike from 15 percent to 35 percent, in the name of reducing deficits.
This, Mark says, is perhaps the No. 1 factor that may dampen what has been the roaring 2020s of the sports betting business, especially given that “under half of the states in the U.S. still have not legalized online sports betting.”
“The regulatory environment will continue to be a headwind for the sports betting and gaming industry,” he argues. “As New York moves into the second-largest sports betting jurisdiction following the U.K., we will continue to watch if other states follow suit.”
Taxes aside, the increase—or as some would call it, inundation, bombardment, etc.—of advertising could also be seen as a negative development that has arisen from this increased activity and investment. While this discussion could easily fill several of its own articles, there’s no doubt that it is in fact a trend worth noting, not just for regulators, but also for the bettors and anyone else with access to cable television.
In response, bookmakers and industry advocates would argue that the marketplace is still very much in its infancy, and therefore must do what it can to make up for lost ground.
“There have been points in time when the industry has been criticized for the amount of advertising,” Miller conceded. “My response has always been, ‘Look, the illegal marketplace has had decades of head start on the legal marketplace that was just opened up in the last few years.’”
When asked about the regulatory considerations of sports betting expansion, both the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement declined to comment.
Horse, Hound and Arms Races
At this point and in the immediate future, the next frontier of growth does not lie directly in sports betting, but rather in other avenues, namely iGaming and iLottery.
In mid-February, DraftKings announced it had acquired the Jackpocket iLottery app in a cash-stock deal worth $750 million in total, which CEO Jason Robins lauded as a way to “create significant value” by giving players “another differentiated product” in the company’s overall platform.
In a similar but slightly smaller vein, FanDuel made its own announcement a week later by acquiring iGaming start-up BeyondPlay for an undisclosed sum, adding high-level jackpot management systems and multiplayer software to its FanDuel Casino platform that already ranks second in the U.S. Asaf Noifeld, managing director of FanDuel Casino, said resolutely that the company’s strategy in the U.S. “is about investing to win.”
“We expect to see this trend continue,” Mark says. “Just as non-sports betting operators in the online gaming world are looking for new opportunities to enter into the market, the big platforms will look for ways to diversify their portfolio and take market share in other parts of the online gaming street.”
For Grove, this style of vertical M&A “is absolutely the next arms race in sports betting,” adding that DraftKings has “placed far and away the biggest bet with Jackpocket.” Moving forward, he says, bookmakers need to “aggressively survey the landscape for targets” that can bring similar value, and those who don’t “are likely to risk surrendering significant market share and long-term potential.”
Overall, it’s no secret that the U.S. loves gambling, sports, gambling on sports, and, perhaps most of all, open marketplaces. This combination has resulted in a devilishly entertaining six-year run that economists will likely study someday with fascination or horror, depending on several complicated factors and surely several more yet to materialize.
In the meantime, bettors and investors alike will continue to have a front-row seat to a battle that extends far beyond the playing field and into boardrooms everywhere.