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Commentary: Big 2021 Sports Betting Numbers Only Tell Part of the Story

With Arizona’s gaming regulators finally reporting the state’s financial figures for December 2021 earlier this month, some final calculations were possible regarding legal sports betting revenues in 2021.

2021 “handle,” which is the total amount wagered by bettors regardless of a bet’s outcome or what happens to that money downstream, was about double that of 2020.

But such comparisons are pointless unless it’s also noted how many more jurisdictions launched sports wagering, either retail or online or both in 2021. Actually, it was 10 jurisdictions (Florida did so for about a heartbeat but a federal judge shut that down) getting the U.S. total to 31 jurisdictions before New York’s notable online launch in January.

However, sports betting revenue reports produced other types of numbers and statistics that create a fuller — although not necessarily that much clearer — picture regarding sports wagering in America, and where it’s headed.

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Handle ($57.75 billion)

Everyone loves to talk about handle, and that’s understandable. It’s the one category that is reliably consistent in the otherwise vastly disparate patchwork of financial numbers that jurisdictions typically hand out, mostly on a monthly basis. Unfortunately, there are about as many financial reporting protocols as there are states with sports betting, which makes aggregation, analysis and comparisons problematic.

As a result, handle has become the number, even though it tells only a fraction of the story. It’s also necessary to note that the significance of handle in the legal sports betting marketplace is diluted by the fact that everyone in the business concedes that the money bet on regulated websites is dwarfed by the handle that’s bet with street bookies and offshore operators.

What the ever-increasing handle numbers do tell us is that Americans love to bet on sports. But we didn’t need a statistician to tell us that.

Far less clear is where that handle is coming from. Are these bets from brand-new gamblers who never or rarely wagered before sports wagering was legalized? Are they bets from customers who are being converted from street/offshore books who are now coming from the cold? Probably both are true. The more meaningful question perhaps is: “Will the converts be short-term gains for the legal market after being lured by operator promotions, and will the legal operators find ways to keep those customers in the fold?”

Revenue ($3.838 billion)

The revenue figure for legal sportsbooks, like the handle, hit new heights in 2021. The figure was $3.838 billion. However, revenue is not profit — and profits have been elusive.

Unlike handle, revenue is a more slippery figure to define but let’s simply call it the money that operators keep after paying out winning wagers. With such an assumption, the aggregate “hold” for sportsbooks in 2021 was about 6.64% (handle divided into revenue). That figure would be consistent with the long-held evidence of hold percentages from when Nevada was the only jurisdiction where sports betting was both broad and legal.

However, revenue figures from states can vary in what they include and exclude, such as bonuses and promotions that operators essentially give away in order to recruit and retain customers.

Profit & Loss Nobody is Making Big Money

The world is still waiting for a major online sports betting venture in the U.S. to report any sizable profit.
DraftKings, which is traded on the NASDAQ and is one of the most prominent sports betting operators in the U.S., reported a loss of more than $1.5 billion is 2021. It was more than $1.2 billion in 2020.

FanDuel, with the largest share of the American sports wagering market, is part of a publicly traded company on the London exchange, Flutter Entertainment. Flutter has a large portfolio of gambling-related holdings that operate internationally and FanDuel is Flutter’s stronghold operation in America. Flutter’s U.S. division delivered a loss in EBITDA (earnings before interest, taxes, depreciation, and amortization) of $323 million for 2021, according to the latest financial report available on Flutter.com.

Caesars Digital reported a net loss of $580 million and an adjusted EBITDA loss of $476 million for 2021.

In general, the bottom line for gaming companies with U.S. online sports wagering operations is well in the red.

Losses are being driven by various start-up costs in new jurisdictions as well as aggressive promotional and advertising efforts.

Stock Prices

Even before the downward pressure that the Russian invasion of Ukraine has created on stock markets, equities of many gaming companies — particularly ones with major exposure in the online sports wagering industry – have seen major declines since roughly February-March of 2021 through to the end of last year and into 2022.

DraftKings became prominent in that regard after CEO Jason Robins tweeted recently that his company was on a mission to make shareholders who sold at DraftKings’ recent low prices “regret that decision more than any other decision you’ve ever made in your life.”

Recently, DraftKings was in the $15 range, flirting with all-time stock price lows. It had been as high as the low-$70s in March 2021.

However, DraftKings hasn’t been alone in experiencing a falling stock price. Penn National, which also has brick-and-mortar casino assets, was trading at above $100 in early spring 2021 and recently was in the $40-$50 range.

Rush Street Interactive was in the $20-range as recently as October and was below $8 as the March Madness basketball tournament approached.

Flutter, with a diverse portfolio of gaming companies internationally, was over $100 during last year’s March Madness season and was under $60 more recently.

American bettors may be entirely enthusiastic about wagering on the games but for now, the investing public is backing away from the companies taking those bets.

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Outlook Is For Revenues To Turn Into Profits

Some online gaming company executives are targeting 2023 as the turnaround year for showing profits, at least in some states. The more mature the market, such as New Jersey, the better the chances for nearer-term profitability.

In optimistic forecasts, some gaming companies toss around the A-word — that’s “A” as in Amazon — with the point being that the online retail giant suffered loses for seven years after going public. Hanging in there for the long-haul produced a commercial juggernaut.

The strategy of some online sports gaming companies is obvious — cultivate strong brand recognition and capture market share.

Marketing Spend Is Reducing

Last year, was a period of major expansion in the sports wagering industry and expansion costs money, lots of it. In 2022, there could be a slowing of new jurisdictions opening up to sports gambling but competitive pressures will still be on gaming companies to acquire and retain customers and the battles will be fierce, particularly in New York. Plus, companies are still likely to take on costs in pushing legislation in some states and supporting referendums in others to legalize sports wagering.

There’s been a handful of sobering developments. Already, notable gaming companies such as Wynn Resorts, Sands Las Vegas and Churchill Downs (Twinspires) have pumped or even slammed on the brakes regarding online sports wagering. And some observers are convinced that there will have to be consolidation in the online sports gaming industry in order for a reasonable number of operators to survive.

Additionally, there is a question of whether legal, regulated online sports wagering companies will ever be able to compete consistently for high-rollers with offshore bookmakers, who pay no taxes, even if those legal sportsbooks do manage to rein in the expenses that have them currently hemorrhaging money.

As it turns out, what the first few years of widespread legal sports wagering in America has demonstrated is that in a business-sense, it’s not just the gamblers who are gambling.

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