The market for legalized sports betting has exploded over the five years to 2022 as new states have continued to legalize sports wagering.
According to the American Gaming Association (AGA), the regulated sports betting market generated $4.3 billion in total revenue in 2021, a 179.7% increase year-over-year.
This growth began in 2018 when the Supreme Court struck down the Professional and Amateur Sports Protection Act, giving individual states control over legalizing sports betting. Since then, 30 states, Washington, DC, and Puerto Rico have adopted some forms of sports gambling.
New sports betting trends
The major players in the sports betting industry are DraftKings and FanDuel, which control more than half the industry, with both companies experiencing explosive growth over the past five years.
Between 2016 and 2021, DraftKings’ industry-relevant revenue grew at an annualized rate of 51.9% to $1.3 billion, nearly doubling its revenue every year since 2019 (latest data available).
Likewise, FanDuel’s industry-relevant revenue grew an annualized 83.6% during the same period, hitting the $1.9 billion mark in 2021.
Industry operators have invested a massive amount of money in customer acquisition in recent years. For example, DraftKings spent $321.5 million in sales and advertising in the first quarter of 2022, or 77.0% of its total revenue.
Seasonal demand
Demand for sports betting services has been driven primarily by the industry expansion to new states; however, companies in this industry have also been affected by seasonal trends.
Although sporting events occur throughout a given year, sports betters are typically most active in the fourth quarter due to the overlapping calendars of the NFL and NBA seasons.
In the US, other major sources of industry revenue are represented by the MLB championship series and the NCAA basketball tournament.
COVID-19
The initial outbreak of the COVID-19 (coronavirus) pandemic had a devastating effect on broader gambling services, with revenue generated by Non-Hotel Casinos in the US decreasing 21.9% in 2020 alone.
Demand for sports betting services was also affected due to the cancellation and postponement of major sporting events, requiring industry operators to issue refunds.
The pandemic also reduced the average spending on sports betting per customer. Nevertheless, the industry continued to grow overall as six new states legalized sports betting in 2020, offsetting most negative effects related to the pandemic.
What’s new in 2022?
In January 2022, New York became the latest state to legalize online sports wagering, making it one of the largest states by sports betting revenue, along with New Jersey, Pennsylvania, Illinois and Nevada.
New York imposes a 51.0% tax rate on gross gaming revenue, and has generated nearly $160.4 million in taxes since January, according to the New York Gaming Commission.
Maine is another state that is on the verge of legalizing sports betting, following the passage of a bill that allows native tribes to provide sports betting services beginning on April 19, 2022.
The rapid expansion of the sports betting industry, including the online industry, has enabled state governments to generate substantial revenue via taxes.
While increased tax revenue can have a positive effect on state governments in the long run, states must develop an appropriate regulatory and tax framework to both let the industry grow and offset any externalities associated with sports gambling.
