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Why sports betting is a low-margin business

·Reporter
·3 min read
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As the U.S. commercial gaming industry drew record-breaking revenue in 2021, sports betting, the industry’s latest entrant, contributed impressive growth yet drastically lower margins than traditional gaming.

Last year, according to the American Gaming Association, the overall gaming industry captured $53 billion in revenue from legal gambling operations, while revenue from the budding sports betting sector from companies like Caesars Entertainment (CZR), FanDuel, DraftKings (DKNG), and BetMGM (MGM), totaled $4.29 billion. The figure, a 177% increase over 2020's sports betting revenue, represents 8% of the total amount of wagers by sports betters of $57.2 billion, also known as “handle.”

Sports bets unlike other pieces in gaming industry

American Gaming Association’s CEO Bill Miller told Yahoo Finance Live on Tuesday that sports betting is likely to remain a lower-margin part of the gaming market compared to more traditional, mostly brick-and-mortar, styles of wagering, because the house, on-average, keeps a smaller percentage of overall bets.

“From handle to revenue…unlike other pieces in the gaming industry — slots, table games, etcetera — it's a low-margin business for sportsbook operators,” Miller told Yahoo Finance Live on Tuesday. A spokesperson for the Association said it does not have data on total amounts wagered across all casino games, but that the figure is "north" of the roughly $57 million sports betting handle.

Asked if he anticipates future margin increases for the sector, Miller said, “I don't. The number one reason, he said, is that in sports betting companies in essence play a hedge and take 10% of the hold.

“There are some times when sportsbooks make money, and there are some times when sportsbooks lose money. And so the reality is, unlike with a slot hold or a table hold, the percentage of revenue, vis-a-vis the overall handle, is always going to be a small number,” Miller said.

FILE - A gambler makes a sports bet at Bally's casino in Atlantic City N.J., Sept. 5, 2019. A record 31.5 million Americans plan to bet on this year's Super Bowl, according to the gambling industry's national trade group. The American Gaming Association on Tuesday, Feb. 8, 2022, released its annual predictions for wagering on pro football's championship game, forecasting that over $7.6 billion will be bet legally and otherwise. (AP Photo/Wayne Parry, File)
A gambler makes a sports bet at Bally's casino in Atlantic City N.J., Sept. 5, 2019. (AP Photo/Wayne Parry, File)

Still, higher rates of participation in sports wagering is fueling increases in handle. Sports betting is now legal in 33 states, plus Washington DC, and seven more states — Arizona, Connecticut, Louisiana, Maryland, South Dakota, Virginia and Wyoming — made wagering legal in 2021.

Among the 33 states and the District of Columbia that now permit bets from brick and mortar locations, 22 states and the District of Columbia have legalized mobile wagering. Two exceptions, Maryland and Florida, have yet to make their mobile markets operational. Louisiana’s mobile market went live last month, though nine parishes have maintained an exclusion on sports wagers.

Several states with large populations have held back on legalization. In Florida, legalization is tied up in court challenges. In California, voters will be asked in November whether to make betting legal. And in Texas, sports betting is expected to have an opportunity for legalization in 2023.

“I'm hopeful and believe very soon that we will have California, Florida, and we're probably a year or so away from Texas, but that would be the trifecta that I'd look for,” Miller said.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed. Yahoo Finance producer and reporter Josh Schafer @_JoshSchafer contributed to this report.

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