🚀 The Sky-Rocket Growth of Sports Betting

Sports gambling has always been around, but now it’s a takeover

“There’s no better time than now”. We hear that saying all the time, and more than likely we’re rolling our eyes as we hear it. Maybe it was more prevalent when you were younger and your parents were getting you to do your chores or study for a test. Or maybe you’re scrolling through IG and some entrepreneur, self-help, motivational speaker (we’re looking at you, Gary Vee) is yelling at you through the screen on how you need to level-up your life. This time, we’ll talk about it when it comes to the topic of sports betting. We’ve been glued to the TV the last few days due to March Madness, we’ve seen the allegations Shohei Ohtani has been involved in with his interpreter, a Toronto Raptors player is now under investigation for making irregular prop bets, and we’ve even heard this topic being referred to as a “risk-free investment” 🙊.

On that note, there’s no better time than now to go through the business of sports betting. Why has there been such a boom within the last few years? How are states and local governments benefiting from this? Is it possible the industry has hit its ceiling? Let’s get into shall we…

What’s the history of sports betting?

• The history of sports betting has gone through peaks and valleys faster than a lie detector machine quickly drawing lines measuring your vitals after fielding pressing questions (we’ve all experienced this, right? 😬).

• 1921 [Scandal]: MLB banned eight Chicago White Sox players accused of throwing the 1919 World Series in collusion with sports gamblers.

• 1931: Nevada legalizes gambling & sports betting. For decades, the state’s casinos are the only spots in the US where legal sports bets could be placed.

• 1951 [Scandal]: After a massive 3-year college basketball scandal, the US government wanted to discourage the spread of legal sports gambling outside of Nevada. In turn, they imposed a 10% tax on money brought in by legal sports gambling in the state, which lead to a sharp decline in Nevada’s betting industry.

• 1961: To limit bookmaking by the mob, JFK signed the Federal Wire Act, which prohibits the use of wire communications for interstate sports gambling. The law remains in effect today and is seen as the reason sports gambling is under the scope of states, not the US government.

• 1974: The US government lowers its tax on sports betting in Nevada from 10% to 2%. This prompts casinos to consider offering new places for Americans to legally bet on sports.

• 1975: The first sportsbook inside a Las Vegas casino opens at the Union Plaza. The next year, bookmaker Frank “Lefty” Rosenthal opens a sportsbook at the Stardust that would become the prototype for sportsbooks — Robert De Niro later portrayed a character based on Rosenthal in the movie, “Casino.”

• 1983: The US government reduces its tax on Nevada’s legal sports bets to 0.25%, where it remains today. Sportsbooks begin to increase in the state, due to advances in satellite TV.

• 1989 [Scandal]: Pete Rose, MLB’s all-time hits leader, is permanently banned from baseball after an investigation finds that he bet on baseball games — including ones involving the team he was playing for.

• 1992: President George H.W. Bush signs the Professional and Amateur Sports Protection Act (PASPA), outlawing sports gambling in states that did not already have laws allowing it (i.e. Nevada becomes only state with legal sports gambling).

• 2006: His son, President George W. Bush (a.k.a. dub-yah 🤠) signs the Unlawful Internet Gambling Enforcement Act, which makes it illegal for owners of online gambling websites to collect money from players. The law was created in response to the boom in online poker and casino games but…it carves out an exception for fantasy sports, declaring them “skill-based games” and not games of chance (i.e. Dub-yah loved himself some Fantasy Football).

• 2007 [Scandal]: Former NBA referee Tim Donaghy pleads guilty to two gambling-related felonies after an FBI investigation finds that he bet on NBA games (including games he officiated) and gave other gamblers information that could shift the outcome of games.

• 2009: New Jersey files its first federal lawsuit seeking to strike down PASPA, arguing that it violated the 10th Amendment (i.e. Congress can’t issue direct orders to states).

• 2018: The Supreme Court strikes down PASPA, ruling that the law is not “consistent with the Constitution” and states are free to establish their own sports gambling laws.

  • Now, 38 states + Washington, DC have legalized sports betting. This means sports betting may be offered to consumers through legal retail or online and mobile sportsbooks (ex. DraftKings, FanDuel, ESPN Bet, etc.)

From a business perspective, how successful is the sports betting industry?

• Extremely successful. According to the American Gaming Association (AGA), Americans wagered a record ~$120B on sports betting in 2023, up ~28% from 2022.

• Those bets translated into $10.9B in revenue in 2023, a ~45% jump from the previous year (see Table 1).

  • Total revenue from land-based casino games, sports betting and iGaming reached $66.5B for 2023, a 10% increase over the previous record set in 2022.

• A major driver for the continued growth is due to the increased number of states legalizing sports betting.

  • In 2023, Kentucky, Maine, Massachusetts, Nebraska, and Ohio all legalized sports betting. Between those five states, they contributed to nearly $1.5B in sports-betting revenue 🤑.

• According to a Goldman Sachs forecast, Americans will legally spend $45B on sports betting each year once the market is mature.

What are the effects on state and local governments?

• Legalized sports betting is a growing business in many states and the tax revenue it generates funds various state resources. Such as, roads, highways, public education, law enforcement, and gambling addiction programs.

• As a result of the record-breaking commercial gaming revenue in 2023, the gaming industry significantly bolstered state and local economies across the country. Commercial gaming operators paid an estimated $14.4B in gaming taxes throughout the year, a 9.7% increase compared to the previous year.

• In Q4 of 2023, the most recent version of the US Census Bureau’s QTAX, sports betting generated national state level sales tax and gross receipts of $759M, up 26% from Q4 last year. As well as a 49.5% increase from $508M in Q3 of 2023 📈.

What does the future of sports betting look like?

• More buy-in from leagues, media companies, and government. We’ve already gone through the taxation numbers. But since the legalization of sports betting, it has completely transformed sponsorship revenue for leagues. For example, according to data compiled by SponsorUnited, the NFL in 2018 made $35M (~2% of total sponsorship dollars) from gambling-related sponsors. That number is now around $132M (~8% of total sponsorship dollars) per year from gambling-related sponsorships. Hey, even Disney’s ESPN got involved with the fun!

• The big fish are still waiting to be caught: It’s hard not to imagine a ceiling when it comes to sports betting. Especially since there are nearly 40 states who have already moved forward to legalize it. However, the big award-winning trout — California and Texas — are still out there roaming the waters. According to a 2022 report done by Eilers & Krejcik Gaming, the opening of the California market alone could generate around $3B in revenue for sports betting, which is almost double of New York’s sports betting revenue. Unfortunately, that will be up to the state legislators and lobbyists to fight over.

• Stricter regulation for players and teams: We went through the scandals at the top, which means we have a good idea of the downsides, especially when players and their close family/friends get involved. Frankly, it’s one of the reasons why it took so long for legalization. Leagues thought legalization would lead to a loss of integrity of the game — now there are arguments that legal betting allows for better monitoring of potential cheating (ex. Calvin Ridley). However, even though it might be easier for sportsbooks to catch these offenders, there’s no doubt these problems reflect poorly on the brand of these leagues (especially when players are already making millions and millions of dollars).

• Technological innovations are coming: We’ve all seen the Apple Vision Pro headset. Think about wearing something like that while watching a game. With game lines, prop bets, suggested same-game parlays popping up on the screen while there’s a timeout — and you’re able to make those bets in real time. Or how about media companies introducing separate channels solely for the gambler. Being able to watch a game with an announcer knowing how each play effects a bet in real time, not necessarily following the game play itself. Or what about AI-powered algorithms that can analyze betting patterns and behaviors to identify very addicted gamblers, who continue to lose money, and provide targeted interventions.

Enjoying this really awesome newsletter? Share with your friends!

Quick Hitters

• 🇩🇪 The German national team is ending its long-standing partnership with Adidas and has signed a deal that will see Nike make its kits from 2027 until 2034. This is a surprising move as Adidas’ partnership with Germany has spanned for more than 70 years 😱! During that time, the team has won four men’s World Cups, three men’s Euros, two women’s World Cups and eight women’s Euros with the collaboration responsible for many iconic shirts during the 1980s and 1990s.

• 🧢 After our story last week, more information has come out between Shohei Ohtani and his interpreter, Ippei Mizuhara. During a press conference yesterday, Ohtani denied he’d ever bet on baseball or any other sport while also telling the media, “Up to a couple of days ago I didn’t even know this was happening. Ippei has been stealing money from my account and has told lies.” (I guess that’s officially one less friend for the greatest baseball player in all the land!)

• 🐯 Last week, Clemson University filed a request for a court to rule on the legality of the ACC’s contracts binding it to the conference (as the school would like the option to leave due to conference realignment) — and whether Clemson must face a $140M exit fee to leave the conference. The news comes just a few months after Florida State University filed a similar but more aggressive lawsuit in an attempt to depart the conference without paying a fee or violating the Grant of Rights contract.