October 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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October 2024 was the first month to see over $15B in handle over a single month, surpassing the previous highwater mark of $14.4B set in November 2023. While Arizona has yet to report, every other state in our Mature/Competitive Market sector saw a MoM increase. With the addition of North Carolina to the 2024 totals (they began operations in March), we expect new records to continue to be set in future months, with interest in sports betting showing no signs of decline yet. This stands in contrast to the recent trend of modest revenue declines at regional casinos across many US states, which have experienced a prolonged period of near-stagnant growth.

According to our index, one state that has not been keeping up with their early-year sports betting momentum is New Jersey. For the first time since we began our calculations, the Garden State has dropped out of the top 5 SBI states. New Jersey clocked in with a 1.14 rating for October, and while this still represents a monthly 14% above average performance, it pales in comparison to their 2024 average reading of 1.34.

Hold Down

On the heels of September, where the sports books compiled high hold rates across all states, October had a market reversal where only one state (Louisiana) had a statewide hold of 10%, and many came in below 5%. The important factor for operators is that after a full month where players experienced very little success, these same players kept betting, and the upward trajectory of handle went uninterrupted as players enjoyed better luck with their wagers.

Event outcomes and operator revenues are ultimately unpredictable, while handle is proving to be more predictable. The ongoing variance in hold versus consistency in handle, after adjusting for seasonal patterns, reinforces our belief that handle is a better macro indicator of sports betting market health. 

Margins and Profits

Sports betting in the past was seen as an “amenity” for casinos, a modestly profitable operation whose main goal was to drive more foot traffic. Since the repeal of PASPA in 2018, this narrative has changed. Online sports betting (OSB) operators set out to establish brand awareness and durable customer bases with the idea that eventually profits would follow.

In hindsight, 2022 marked a pivotal year in which the marketplace appeared to transition to a profitability-focused strategy. The big public operators began to highlight how and when they would be EBITDA positive, and many smaller operators shut down US operations due to lacking a pathway to profitability. The widely discussed trend to increasing hold is just one aspect of generating a bottom-line profit. We at RubinBrown have closely watched margins for both OSBs and retail sports books to see how results have been trending and where improvements could be found.

While the focus has understandably been on the big OSB operators and their profits today and into the future, we have noticed that quite a few retail sports books continue to succeed and actually are seeing enviable bottom line margins close to 50%. In their quest to build their brands and customer bases, OSB operators have not come close to these margins, and the reasons given are generally due to the many costs they incur. In the near future, OSB operators have the potential to optimize their cost structures by eliminating inefficient expenses that do not directly impact revenue. This necessitates a thorough analysis of operational processes and a strategic approach to cost reduction. 

Several operational cost categories have experienced significant advancements driven by technological innovation and increased market competition. These developments present opportunities for operators to streamline processes, reduce expenses, and enhance overall business performance. Data suppliers, risk management software, CRM systems, and payment providers are a few examples of B2B suppliers that have seen increased attention from the markets due to their ability to increase margins for their customer-facing operating partners. We’re seeing these innovative companies assist not only online operators but retail sportsbooks as well.

The intensifying competition within the B2B supplier market will empower customer-facing operators with increased bargaining power. To further solidify their market positions, operators may pursue vertical integration strategies, as demonstrated by DraftKings' acquisitions of specialized B2B providers such as SimpleBet and Mustard Golf. The Federal Reserve’s recent decisions to lower interest rates have contributed to a more optimistic outlook for the overall M&A market. Investors of B2B suppliers looking for exit opportunities and operators looking to increase their margins with vertical integration could prove to be a theme in 2025.

Published: 12/24/2024

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