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The online sports betting business has grown rapidly throughout the past four years, following the US Supreme Court’s 2018 decision to rescind a prohibition on the practice in most places across the nation.
In 2021, Americans wagered nearly $57 billion on sporting events, according to the American Gaming Association (AGA). Sports betting has now been legalized to some degree in 36 states (plus the District of Columbia). Six of those states have passed laws to deregulate wagering but have not officially launched sportsbook services yet. Ohio, the state with the largest expected market among those who have legalized sports betting but are yet to green-light operations, will allow sportsbooks to begin taking bets on January 1, 2023. The state’s Legislative Budget Office has projected a $1.1 billion handle for fiscal year 2023 and $3.1 billion for fiscal year 2024.
In the first half of 2022, the AGA pegged overall US gaming revenue at $29.16 billion, representing an 18% YoY gain versus the same period last year. Commercial sports betting revenues totaled $3.04 billion, representing a much faster growth rate than gambling as a whole, surging 63.9% YoY.
January 2022 saw more money wagered on sports than any single month in the past at $4.36 billion, but handles in most markets have been falling since then. That’s largely due to the fact that the largest share of the US’s betting handle typically comes in during the National Football League’s (NFL) regular season and playoff schedule – the period between September and February – so the bulk of 2022’s handle is still in the pipeline.
Sportsbook operators are expected to spend $1.8 billion on online gambling advertising this year, up from $1.0 billion last year, according to media consulting firm BIA Advisory Services. In the same way gambling firms are willing to pay up for advertising, they’re also dumping heaps of cash into political interests ahead of a key ballot initiative this election season.
Major industry players see so much potential still left to be tapped in sports betting that committees supporting and opposing two proposals for gambling legislation in California, Propositions 26 and 27, have made sports betting the most expensive ballot measure in state history. Per Ballotpedia, several parties in each camp have spent more than $250 million collectively to decide who will ultimately reap the profits if and when California does legalize mobile sports betting within the state. The Los Angeles Times puts the figure much higher, claiming $350 million has been anted up, a sum that could grow to half a billion dollars by the time all is said and done in November.
Sports betting is likely to be approved in some capacity California, as a February 2022 survey by UC Berkeley and the Los Angeles Times found that plurality of 45% of voters support amending the state’s constitution to allow sports betting versus just one third opposed and 22% undecided. The more pressing issue at hand is who will collect the revenues generated by a sports betting market.
In California, casinos currently exist exclusively on Native American reservation lands. The tribespeople in charge of those operations have lobbied to keep sports betting revenue within the state and on their terms via Proposition 26. That measure would approve the legalization of sports betting, but preserve all sports betting activities to American Indian gaming casinos and licensed racetracks (the proposition is also known as the California Legalize Sports Betting on American Indian Lands Initiative).
Proposition 27, meanwhile, would broadly legalize in-person, online, and mobile sports wagering, allowing out-of-state companies to offer their sportsbook services to Californians. The petition to get that measure on the ballot for November was circulated by a group of seven sports betting operators, led by BetMGM, DraftKings, and FanDuel. For publicly traded sports betting firms, the passage of Proposition 26 over Proposition 27 would be disastrous and akin to legalization being denied outright.
The impact of legalization in California cannot be overstated. Not only does it have the largest population of any state, but it also has the largest economy by GDP and, therefore, strong potential to be the most lucrative sports gambling market in the country. A legislative analysis by the AGA said residents illegally wagered roughly $18.7 billion in 2016, illustrating just a portion of what a legal sports gambling market could look like in the Golden State.
Last week, SportsHandle reported Major League Baseball (MLB) became the first professional sports league to back one of the California proposals when it released a statement lauding the “strong integrity provisions” of Proposition 27. Brendan Bussmann of B Global suggested the endorsement is a potential turning point for the campaign due to the league’s brand power breaking through “the noise of a messy campaign”.
Proposition 27 has also managed to garner the support of three Californian tribes, each of whom own casinos, which will undoubtedly be a strong PR boost to their cause. Some of the smaller tribes, like those backing Proposition 27, would likely leverage its passage to partner with online sportsbooks to boost their own business and compete with the larger tribes. Additionally, 15% of all tax revenue generated from Proposition 27 would go toward supporting non-gaming tribal communities in the state.
The largest share of cash is currently coming in for Proposition 27 and against Proposition 26 as the Los Angeles Times notes Sports betting companies have pumped $150 million into their campaign supporting the initiative. Cardrooms have kicked in $41 million to oppose Proposition 26.
Several tribes that own casinos have raised $92 million to support Proposition 26 and oppose Proposition 27. Other tribes have given $66 million just to oppose Proposition 27.
Theoretically, both initiatives could garner enough support to pass, in which case the initiative with the most support would win out.
With football season and election season both approaching rapidly, a whole lot of money is on the table for sportsbook operators, meaning the second half of this year could mark a defining moment for the industry going forward. Investors can gain exposure to sports betting via the Roundhill Sports Betting & iGaming ETF (BETZ). |
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