Sports betting is now legal in some form in 33 states, and $85bn of legal wagers have been made with licensed US sportsbooks in the past 12 months.
Despite a handful of states only allowing retail sports betting, over 90% of handle is generated through online / mobile sports betting.
In terms of gross win / customer losses, US licensed sportsbooks have generated over $6.3bn in gross win (handle less prizes paid out) over the past 12 months, with just under 90% of this generated through online / mobile channels.
However, we note that gross win figures include free bets, so the actual net win (the actual customer losses) is much lower than this.
The hold margin can vary substantially on a month-by-month basis, due to sporting results (predominantly driven by the number of favourites winning, although other factors such as odds promotions can also have a significant impact).
Generally, retail has a higher hold margin than online, due to the type of bets placed (more parlays / less in-play in retail) and the relative lack of competition (retail has a more captive audience).
However, the differential between the two channels has narrowed, with the average retail hold margin over the past 12 months of 8.7% only 130 basis points higher than the average online hold margin of 7.4% over the same period.
Speed of roll-out
33 states have some form of sports betting – including states where there is only retail sports betting on tribal reservations.
In terms of the commercially regulated market, legal sports betting has launched in 26 states. Combined, these states have an adult population of over 100 million, or c.43% of the total US adult population.
In terms of the wealth of these states, commercially regulated sports betting states have a combined GDP of over $10tn, or c.42% of total US GDP
Sports betting gross win per adult
Monthly sports betting gross win can vary substantially, based on seasonality and the hold margin (primarily driven by sports results).
Therefore, to smooth out these monthly changes, we show the legal sports betting gross win using a 3-month average gross win, and then multiply this by 12 to get an annualised figure. When dividing by the total number of adults in states where sports betting is legal, this equates to annual gross win of c.$60 per adult.
Reported gross win data includes free bets, which are substantially higher in the US than elsewhere, given the high levels of competition in newly regulated states and the importance of market share / scale in terms of long-term profitability.
In European markets, one may expect free bets to equate to c.10-15% of gross win, or c.1% of handle. However, H2’s analysis shows that the US we have seen free bets substantially higher than this, artificially inflating the market size.
Over the past 12 months, sports betting free bets (in states where this is reported) have averaged 39% of gross win and 3.2% of handle. That is to say that actual customer losses in the past year are c.39% lower than the reported market gross win.
Free bets in decline?
However, investor pressure on operators to show a path to profitability has led to a reduction in promotional activity. Therefore, we have seen a reduction in free bet percentage in 2022 compared to 2021.
We caution that when looking at free bets as a % of gross win, individual monthly data can be influenced by the hold margin. In that sense, the June 2022 free bets data looks higher than it actually is, and the September free bets look a lot lower, due to the higher-than-normal gross win on the back of very favourable sports results.
By sport analysis
The US sports betting market is dominated by three sports – Football, Basketball and Baseball – although the timings of each of the seasons means that the split of betting between these sports varies significantly throughout the year.
On average, these sports represent c.80% of total handle throughout the year – although during Q2 / Q3 2020, this was significantly lower as major sporting events were cancelled.
While the basketball season starts in October, there is strong competition with the NFL during calendar Q4, and therefore it is not until the first calendar quarter of the year when basketball becomes the dominant product for sports betting, culminating in the ‘March Madness’ college basketball finals.
This changes towards the middle of the year when baseball takes over as the dominant product, filling the gap between the end of the basketball season and the start of the football season. However, as we get to the end of calendar Q3, football becomes the focal point, with the NFL / college football generating the majority of operator gross win from October to January.
The seasonality of the sporting calendar means that inevitably some parts of the year have a greater impact on sports betting operators than other parts – however there are also arguably three key events in the sporting calendar when competition intensifies. These are the start of the NFL season in September, the Super Bowl in February and the College Basketball Championship (March Madness) in March.
Super Bowl dominates
The Super Bowl generates the highest wagering on a single game in the United States, generating just over $1bn in legal wagering in the U.S. in 2022. This equates to c.7% of total NFL wagering, despite accounting for less than 0.4% of total games – or c.5% of total football wagering (including college football) despite accounting for just 0.1% of all games.
March Madness is the single largest wagering event in the United States, generating c.$3bn of legal wagering in the U.S. in 2022. This equates to c.10% of total basketball wagering (including all NBA wagering) despite accounting for only 67 games out of over 7,000 a year – the equivalent of 10% of wagering from c.1% of games.
The start of the NFL season also sees operators increase promotional activity, as it is viewed as a key opportunity for new sign-ups.
Outside of these three main periods, there are other one-off events that can be used as acquisition tools. One of which is the FIFA 2022 World Cup, for which the US soccer team qualified. While soccer is a minor sport in terms of wagering, it is the largest event globally in terms of wagering, and H2 estimated that it could generate c.$0.5bn of handle – depending on how far the US team progress in the tournament. Flutter, for example, have stated that the US winning the World Cup represents their greatest liability for the tournament, although this is in a large part due to the long odds of 125/1.
Bet type analysis
Betting can be broadly split between two different bet types – single bets and parlays.
Single bets are a based on a single outcome – for example the winner of a match. Parlay bets (also known in Europe as accumulators or multiple bets) are based on the results of multiple outcomes – such as the winner of 3 separate matches
Parlay bets can lead to significantly higher winnings for customers, as the winnings from the first bet is effectively used as the handle amount for the second bet and so on – and are therefore attractive in terms of potential winnings versus initial stake. However, they are also more profitable for operators, having a higher hold margin.
Over the past year, parlays have accounted for c.15% of US sports betting handle, but given the higher hold margin, they have accounted for c.37% of operator gross win.
The average hold margin of a parlay bet over the past year is 20% – meaning that an operator will on average keep 20% of all parlay wagers – compared to just 5.7% for single bets. Given the relative proportion of single vs parlay wagers, this has led to an overall merged hold margin of c.7.7% over this period.
Oregon has split out data between pre-match bets and in-play bets (wagers made after an event has started).
Low hold margin for live betting
In Europe, in-play is an incredibly popular product, accounting for well over 50% of all betting activity. In the US, according to data from Oregon, in-play accounted for just under 50% of total handle in 2021, and c.44% of gross win.
The lower gross win percentage is due to the generally lower hold margin for in-play betting – which itself is partly due to the fact that the majority of in-play bets are singles, compared to pre-match bets which are often parlays.
In Oregon, the average in-play hold margin in 2021 was 7.9% compared to an average pre-match margin of 10.6%, and overall hold margin of 9.3%. This is higher than the 7.7% referenced when comparing parlays vs single bets as the hold margin in Oregon is generally higher than elsewhere as there is a monopoly online operator in the State, and therefore it does not need to use pricing as a competition mechanism.
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