The Expansion of Online Betting in the USA and Where it is Heading

Online sports betting has enjoyed a remarkable ascent in the wake of the Supreme Court’s momentous decision to declare PASPA unconstitutional in May 2018. PASPA, short for the Professional and Amateur Sports Protection Act of 1992, was a federal ban that outlawed sports betting in most of the country. Nevada was excluded, allowing retail sportsbooks to thrive in the Silver State, while sports lotteries in Oregon, Delaware and Montana were exempt. However, Nevada was the only state with a full sports betting industry.

New Jersey objected to this situation, arguing that it put Atlantic City at a disadvantage in attracting tourists. It mounted a legal challenge against PASPA, which the professional sports leagues fiercely resisted, causing a lengthy process in the courts. It all came to an end in 2018, when the SCOTUS finally decided to strike down the federal ban, sparking jubilation in the Garden State legislature. That ruling allowed individual states to legalize sports betting and regulate it as they saw fit. By the end of 2018, Delaware, New Jersey, West Virginia, Mississippi, Pennsylvania and Rhode Island had all rolled out legal sports wagering industries, joining Nevada in a flourishing market.

The Domino Effect

That created a domino effect. Lawmakers in various states were upset to see residents crossing over the border to place bets in neighboring states, so they decided to pass sports betting laws too. Sports betting is now legal in more than half of all states: Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Virginia, Washington, West Virginia and Wyoming, along with Washington DC. There is also limited sports betting at tribal casinos in New Mexico and North Carolina.

The law is different in every state. Some of them only have retail sports wagering, including Arkansas, Delaware, Maryland, Mississippi, South Dakota and Washington. Nevada is also heavily skewed towards retail betting, although mobile apps are growing in prominence. Others are controlled by lottery monopolies, including Montana, New Hampshire, Oregon and Rhode Island, plus the District of Columbia. Florida’s legal online sports betting industry only lasted a couple of weeks before a federal judge decided it violated the constitution.

The main states with open, competitive online sports betting markets are Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Louisiana, Michigan, New Jersey, New York, Pennsylvania, Tennessee, Virginia, West Virginia and Wyoming. These are the key battlegrounds for nationwide operators like FanDuel, DraftKings, BetMGM and Caesars Sportsbook. FanDuel is currently leading the way, ahead of DraftKings, but competition is heating up.

A Multibillion-Dollar Industry

The national sports betting handle increased 165% in 2021 to hit $57.22 billion, according to the American Gaming Association. Revenue shot up 177% to $4.29 billion. The country’s online sportsbooks are currently operating at a loss, as they are spending so much on promotions and bonuses, but it points to the vast potential of the industry. The strong performance in 2021 was driven by the mature markets of New Jersey, Nevada and Pennsylvania, along with rising powers like Illinois and Michigan.

The wider commercial gaming industry – which includes land-based and online casino gaming – set a new record with $53 billion in revenue in 2021. “These results are nothing short of remarkable,” said AGA President and CEO Bill Miller. “The success of 2021 reflects our commitment to health and safety and how Americans have welcomed gaming’s expansion across the country. Today’s industry is effectively meeting customers how and where they want to engage—whether at a casino or through mobile gaming. I’m optimistic that we will see continued growth throughout 2022.”

Competition Mounts

The sports betting industry looks set to shatter those figures in 2022. New York became the largest state to unveil a legal online sports wagering sector in January, and it has already overtaken New Jersey to become the number one market in the country. In its first five weeks, operators handled $2.4 billion in bets, including $472 million in the week leading up to the Super Bowl. “It’s our first month, ever, and we’re at $2 billion,” said State Senator Joseph P. Addabbo Jr., who spearheaded legalization efforts in the state. “It’s amazing. The astonishment of these numbers: It’s incredible.”

However, operators are already starting to buckle under increased competition. They are giving out huge welcome bonuses to attract new customers in a frenzied battle for market share, meaning they are all losing fistfuls of cash. BetMGM, one of the leading sportsbooks operating at a loss, estimates that each new customer costs more than $200. Alan Woinski, a gambling industry analyst and consultant, said it was “the most ridiculous thing I’ve seen in my life,” adding: “It’s great for New York, it’s pretty damn good for the bettors, it’s an absolute disaster for the operators. It’s war. They’re killing each other.”

The first major casualty was TwinSpires Sportsbook. Owner Churchill Downs Inc. announced it will be wound down, claiming it could not see a path to profitability at a time when so many operators were engaging in “unsustainable” promotions. FanDuel believes that only four or five operators will make it, and the rest will fall away, so a war of attrition is currently playing out.

A Growing Sector

Yet the industry will continue to grow and more opportunities will arise. Online sports betting is set to begin in Ohio and Maryland this year. Illinois has scrapped its in-person registration requirement. Florida is trying to get its industry back off the ground, while the push to legalize online sports betting is gathering pace in many more states.

The USA has now overtaken the UK to become the largest sports betting market in the world, and that is without the three largest states – California, Texas and Florida – allowing sportsbooks to operate. Right now, bettors in those states use trustworthy offshore sites like BetOnline and MyBookie, but they could join the party at some point in the future. After all, their residents continue to head into neighboring states to wager, so it would make sense for them to regulate and tax their own markets, suggesting that the US sports betting juggernaut will continue apace in future.

 

Leave a comment