Legal sports betting has exploded in the U.S. over the past few years. It’s a multi-billion-dollar industry that now operates openly, with lawmakers and operators cashing in on what was once hidden in the shadows.
But for all its fanfare, there’s a big question that keeps coming up – where does all the money go? Some argue that most revenue ends up in private hands, not benefiting the public. Well, it’s time to dig in, open the playbook of the sportsbooks, and figure out exactly what happens to our lost bets.
The Rise of Legal Sports Betting in the U.S.
Since the Supreme Court overturned PASPA in 2018, sports betting has become legal in more than 35 states. Each state takes its own approach – some only allow betting in person at casinos, while others, like Pennsylvania, permit online sportsbooks as well.
The industry has grown at an eye-popping rate, with sports betting revenue by year setting record highs consistently.
Breaking Down the Sports Betting Handle
Most people new to the sportsbook world wonder what the sports betting “handle” is. Simply put, the handle is the total amount wagered by players, whether they win or lose. It’s not the sportsbook’s revenue – think of it like a casino’s chip count before players cash out.
For the sake of comparison, states like New York and New Jersey see monthly betting handles in the billions, while smaller states often hover around tens of millions.
Here in Pennsylvania, the monthly handle usually crosses $600 million – a solid number that ranks among the top five nationwide. We went as high as over $900 million in November 2024. What matters more, though, is how much of that money stays with the bookies versus what gets paid out as winnings.
Where Does the Revenue Go?
States love legalizing sports betting because it generates tax revenue. However, the way they distribute that revenue varies.
Some require sportsbooks to pay a higher tax rate. For example:
- Pennsylvania has one of the steepest rates at 36%, generating significant revenue for the state.
- Nevada, by comparison, taxes its sportsbooks at just 6.75%, one of the lowest in the US.
To bring it home, Pennsylvania reinvests some of this tax revenue in initiatives like public education and economic development projects. That sounds nice on the surface, but critics say the actual percentages allocated are murkier than they would like.
Indeed, following the money trail isn’t easy for everyday users – you almost need a law degree (or the patience to wade through government reports) to figure it all out.
With so many casino scandals in the industry, it’s important for players and gamblers to understand where the money actually goes.
Taxes, Fees, and the Government’s Cut
Aside from general tax revenue, states impose licensing fees for sportsbooks to operate legally. These fees can vary:
- New York charges a hefty $25 million upfront licensing fee for mobile sports betting operators.
- Smaller states might charge significantly less, sometimes under $1 million.
Once these fees are collected, they’re supposed to go into state budgets. But critics say this is where things start to feel dicey. Pristine headlines about “helping communities” are often overshadowed by bureaucracy.
For every dollar earmarked for a smooth-sounding program like “infrastructure development,” it seems like 20 cents disappears into administrative costs.
How Much Do Bookies Really Make?
Now, if you’re thinking all those taxes mean operators barely scrape by, think again. Major players like FanDuel, DraftKings, and BetMGM still rake in huge profits each quarter. Gross revenue numbers versus operating costs often double-digit millions.
For perspective, Pennsylvania sportsbooks raked in over $6 billion in 2024. Are they coughing up that high tax percentage? Sure. But with billion-dollar handles, the profit margins remain robust.
On the flip side, smaller operators don’t always thrive in this hyper-competitive space. It costs money to handle legislative compliance and acquire customers in such a crowded market (more on that in a bit).
Marketing and Promotions: The Hidden Costs of Acquisition
If you’ve bet even once, you’ve probably been offered promotional deals like “Bet $5, Get $200 if Your Team Scores a Point.” These offers aren’t acts of generosity – they’re multi-million-dollar strategies sportsbooks use to lock in new customers.
For instance:
- DraftKings reportedly spends $1b+ on marketing every year.
- Many operators burn huge portions of their revenue just by acquiring customers.
This frantic promotional war is a financial arms race, meaning companies might scrape by with little net profit after throwing marketing dollars out the window. While these promos are enticing for players, long-term loyalty doesn’t always follow.
What About the Players? Winnings and Losses in the Equation
It’s important to note that most of the handle never even becomes sportsbook “revenue.” On average, sportsbooks operate with a 5-10% hold, meaning 90-95% of the money wagered is eventually returned to the players as winnings.
But while some lucky bettors cash in big, a large chunk of the payouts circles back as new bets from recurring gamblers, diminishing the overall payout pool’s societal benefit.
Does Sports Betting Revenue Benefit Society?
This is the million-dollar – or billion-dollar – question. Supporters of legalized sports betting argue that the tax revenue helps fund schools, roads, addiction prevention programs, and all the good stuff.
Critics say the contributions are small relative to the negatives, like gambling addiction and unregulated payrolls.
From what I’ve seen in Philly, some of this argument holds true. Yes, sports betting taxes fund public programs, but they’re far from revolutionary. The cynic in me sees this as a distraction while massively rich companies walk away with the lion’s share of the money pie.
The Cynic’s View – Private Profits vs. Public Good
Peering behind the curtain, the cynics aren’t entirely wrong. While some revenue helps fund public initiatives, a lot more benefits private companies, executive salaries, and shareholder dividends, too.
The sportsbooks are winning far more than the states or local communities. That said, the situation isn’t all bad – it beats the old days of illegal bookmaking when none of the money benefited anyone but criminals.
So, What’s The Future of Sports Betting Revenue?
Legal sports betting isn’t going anywhere. States continue jumping on the bandwagon, and revenues keep climbing. Projections suggest the industry will only get bigger in the years to come.
The real question is whether states will fight harder to keep more of the money in public hands or if sportsbooks will solidify their dominance with low taxes and high margins.
Keep an eye on regulations moving forward. If we’re lucky, the tide might shift toward more transparency and public benefit. Until then, bet responsibly!
