The sports industry is one of the most profitable in the entire United States. Take a look at the NFL, for instance, worth an estimated $142.87 billion across all 32 teams as of April 2023. The NBA is close on their heels, with a total value of roughly $90 billion, and both those numbers are sure to grow by leaps and bounds in the coming years.
Entertainment sells at a rate that few other products manage to come close to, and in our increasingly interconnected online world, that rate is going to continue to increase. One example of the expansion of the sports entertainment industry is the bustling field of sports gambling, which has taken off exponentially since 2018, when the United States Supreme Court voted to overturn a federal ban on the pastime that had stood for decades, paving the way for individual states to decide whether or not they wanted to permit sports betting.
The ongoing wave of legalizations began in fits and starts, but by the middle of 2022, 33 states (along with the District of Columbia) saw sportsbooks up and running. Another four states have passed the necessary legislation, waiting in a holding pattern while the needed infrastructure is set into place. Of those 33 states, 28 of them allow you to bet from anywhere in their borders via online betting sites, up from just 18 at the start of 2022.
The fact of the matter is that betting on sports is likely to happen, no matter if it’s legal or illegal: look at how poorly Prohibition and the War on Drugs turned out for those trying to limit contraband from society.
Legalization paves the way for regulation, and states are much better off if they set up the framework needed for betting to take place legally: that way they can profit from the industry through jobs created and tax dollars, rather than seeing money slip out of their fingers with off the record, black market industries.
Any economic sector is a complex ecosystem of buyers and sellers, watchdogs and middlemen, and the gambling industry is no different.
While the financial returns from legalization have been overwhelmingly positive (states wouldn’t be tripping over themselves in a rush to be the next to legalize if that weren’t the case), there’s a lot of variation from state to state when it comes time to balance the books and see just how much revenue they’re raking in.
States can plan ahead for some of the market’s eccentricities. Although most fiscal years for state budgets begin in July, many states time their sportsbook launch dates around the start of the New Year so that they can take advantage of two of the biggest sporting events of the year, the Super Bowl and the NCAA Men’s Basketball Tournament, adding fuel to the fire of a growing market as sports betting becomes one of the hottest trends as the new kid on the block.
Another factor that determines just how much revenue a state brings in from sports gambling is the revenue tax that they choose to levy on bettors and bookies. Tax rates on bettors typically hinge on the tax bracket that they fall into (which could swing quite a bit, depending how talented of a wagerer they are), while the gross gaming revenue taxes levied on sportsbooks occur at a flat rate.
Various states have taken wildly different approaches toward taxation, with New York levying a massive 51 percent tax on sportsbook winnings, bringing them nearly $700 million in 2022, their first year of legal operations. Other states like Ohio have toyed with the idea of increasing their tax rate (which currently sits around 10 percent), hoping to follow in the footsteps of the Empire State to record profits, but ultimately decided not to in the hopes that it would keep sportsbook operation profitable for business owners, dissuading illegal bookies from beginning operations.
Ultimately, the sports gambling industry is still in its infancy here in the states. It’ll take time for all of these trends to shake out, and for legislators and sportsbook operators to determine the most profitable way of operating in doing so.
States can’t plan for other factors (although they certainly aren’t complaining about them), as natural ebbs and flows of the market can bring an unexpected boost.
Take a look at the Commonwealth of Massachusetts, where sportsbooks went live in late January (in-person betting options at casinos) and early March (mobile betting platforms). The Bay State received an added jolt of revenue as hometown teams like the Boston Bruins and Celtics geared up for potential championship runs.