August Sports Betting Index (SBI)

In the chart below, we present our RubinBrown Sports Betting Index (SBI). The SBI is based on our proprietary index of the leading sports betting states in the U.S. To continue to best reflect current market conditions, we’ll occasionally adjust the components of the index. To better compare competitive conditions, our index numbers focus in on a group of mature, competitive states. Therefore, a state with an index score of 1.15 had a raw index score of 15% greater than the average, while a 0.90 index score shows a 10% lower than average result.

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The NFL and college football seasons are in full swing, marking the peak months for sports betting activity. From a macro perspective, the sports betting landscape is proceeding as expected with year over year top line handle and revenue growth in nearly all jurisdictions. However, our analysis indicates we be may be seeing the precursor to a market shift as large operator hold is increasing while market share in terms of handle declines.

How long can increasing hold be an industry tailwind?

Several jurisdictions, such as Illinois and Colorado, have posted months where parlays/combinations have accounted for 30% of statewide handle. From the operator perspective, the hope is that the continuing shift in consumer behavior has led to the realization of higher hold with parlay bets representing a greater share of placed wagers. We wonder how long will this shift continue to positively impact operator results?

Many news sources have highlighted the impressive performance of top sportsbooks, citing their sustained revenue growth and high hold percentages as drivers of profitability. These are largely attributed to product improvements such as same game parlays. The thought is a growing emphasis on engagement and entertainment, rather than solely financial gain, has created a shift in consumer sentiment. This shift to taking small risks in the hopes of large returns appears to be gaining strength, even though the mathematics behind it make this less favorable from a probability perspective. 

We anticipate that the sustainability of hold percentage growth in sports betting will mirror patterns observed in other industries. Periods where profit growth is derived from increasing margin, hold in this case, can only persist for so long. Rising margins lead to increased competition, customer resistance, or a combination of both. As the sports betting market continues to mature, we predict that handle and hold will eventually settle into a range that is higher than historical norms, but perhaps not at the 20% levels some are discussing. We do expect that the ubiquity of online access and the ease of executing parlays will shift the benchmark higher, but sustained 15%+ hold will be limited to those who can shift their customer base to one which mostly bets on parlays.

Another overlooked consideration is how are customers adjusting the size of their parlay bets compared to straight bets? When placing a straight bet on a 50/50 outcome, the patron is expected to lose (spend) roughly 5% of that wager. FanDuel has a stated target hold of 16% on parlays. If a patron bets $100 on straight bets with 5% hold and $30 on a parlay with an expected 16% hold, expected revenue to the operator is similar. What isn’t publicly known is how have those bet sizes trended. Is recent growth in revenue coming from not only increased handle but also patrons having relatively larger parlay bets relative to straight bet wager size? Since we follow handle more closely than revenue, we may spot potential changes that affect operator revenue before they are widely seen in reported results. 

Shifting handle trends

RubinBrown’s research shows shifts in the share of handle for both tier 1 and tier 2 operators. While not all states provide operator-specific data, those that do indicate a growing market share for DraftKings and certain second-tier operators. This trend has been evident throughout the year. The accompanying charts illustrate the distribution of handle among operators in these jurisdictions.

Market share is more commonly analyzed based on revenue. Ultimately, revenue is more important for operators, not to mention its importance to the States as all but one derives tax from revenue. We believe handle is a better metric to follow to determine larger marketwide trends and to better decipher patron behavior. Bigger picture, we see handle as an indicator of how much patrons want to bet on sports, while revenue is an indicator of how effective the operators are at generating profit.

Contact us for more of our research, analysis, and thoughts on the future of online sports betting and gaming.

Published: 10/30/2024

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