Published: February 16, 2022

Why sports betting is a low-margin business

As the U.S. commercial gaming industry drew record-breaking revenue in 2021, sports betting, the industry’s latest entrant, contributed impressive growth yet drastically lower margins than traditional gaming.

Last year, according to the American Gaming Association, the overall gaming industry captured $53 billion in revenue from legal gambling operations, while revenue from the budding sports betting sector from companies like Caesars Entertainment (CZR), FanDuel, DraftKings (DKNG), and BetMGM (MGM), totaled $4.29 billion. The figure, a 177% increase over 2020's sports betting revenue, represents 8% of the total amount of wagers by sports betters of $57.2 billion, also known as “handle.”

Sports bets unlike other pieces in gaming industry

American Gaming Association’s CEO Bill Miller told Yahoo Finance Live on Tuesday that sports betting is likely to remain a lower-margin part of the gaming market compared to more traditional, mostly brick-and-mortar, styles of wagering, because the house, on-average, keeps a smaller percentage of overall bets.

“From handle to revenue…unlike other pieces in the gaming industry — slots, table games, etcetera — it's a low-margin business for sportsbook operators,” Miller told Yahoo Finance Live on Tuesday. A spokesperson for the Association said it does not have data on total amounts wagered across all casino games, but that the figure is "north" of the roughly $57 million sports betting handle.

Asked if he anticipates future margin increases for the sector, Miller said, “I don't. The number one reason, he said, is that in sports betting companies in essence play a hedge and take 10% of the hold.

“There are some times when sportsbooks make money, and there are some times when sportsbooks lose money. And so the reality is, unlike with a slot hold or a table hold, the percentage of revenue, vis-a-vis the overall handle, is always going to be a small number,” Miller said.

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