Since the US government repealed PASPA in 2018, 30 states have legalized some form of sports betting. Of those states, 21 have legalized online sports betting. Anyone within a legal state’s boundaries can participate in online sports betting utilizing one of the state’s licensed operators.
Sport betting fans utilize online sportsbooks or retail locations that are licensed in the state. Across the US, a few prominent sportsbooks have dominated the market, making it extremely difficult for new, smaller sportsbooks to enter the scene. The rising cost of licensing fees, along with the cost of acquiring new customers is often too great for these smaller sportsbooks to expand to new states.
Licensing Costs Across The United States
Smaller sports betting companies are often limited by the overwhelming licensing costs that are required when expanding to new states. Look at states like New York, Illinois, or Pennsylvania, for example. A 10-year license in these states costs operators $25 million (New York), $20 million (Illinois), and $10 million (Pennsylvania). Larger sportsbook operators like FanDuel, DraftKings, BetMGM, and Caesars have access to massive amounts of capital, making expanding to new states possible. These operators often can enter these new sports betting markets right from launch, something smaller sportsbooks rarely accomplish. State operators know they can charge so much for these licensing fees because operators will pay it. Being the first or one of the first sports betting operators in the state oftentimes is the difference between succeeding or failing in a new market.
Licensing fees are just one of the expenses associated with launching in a new state. In most markets, operators have to ensure their software complies with all standards imposed by state officials. These requirements often require sportsbooks to make changes to their software to ensure compliance. These changes understandably take time and money.
Cost to acquire new customers
Another cost sports betting operators have to deal with is the rising cost of acquiring new customers. Estimates place the cost of acquiring a new customer between $350 – $400 per user. DraftKings reported a cost of $371 per customer in 2020. Additionally, some sports betting operators won’t see a profit for at least a year. For example, Caesars CEO Tom Reegs reported the company would “be profitable as an entire enterprise, that will include New York, by football season of ’23.”
State taxes are on the rise as well. While the average tax rate across the US is 19%, new legal sports betting states like New York established a staggering 51% tax rate for operators. Larger operators can maybe afford the tax hit since it’s only one state across the many they operate within, however, smaller operators may not be able to last long term in these markets. New York is currently the largest state (by population) with legal sports betting. California is voting on sports betting this November, while Texas and Florida haven’t legalized the activity yet. Should California legalize sports betting, state operators would be required to pay an unimaginable one-time licensing fee of $100 million along with a $10 million renewal fee every five years. Federally recognized tribes would receive a break, required to pay a one-time licensing fee of $10 million and a renewal fee of $1 million.
Top US Sportsbooks
A report conducted by Eilers & Krejcik Gaming titled, July 22 market share report showed how six US sportsbooks make up over 93% of the online sports betting market share.
The top six US sportsbooks accounting for 93.9% of the total US market share are:
- FanDuel (46.6%)
- DraftKings (20.2%)
- BetMGM/Borgata (14.1%)
- Caesars/William Hill (7.5%)
- BetRivers/SugarHouse (2.9%)
- Barstool (2.8%)
If we don’t see states working alongside smaller operators to ensure their survival, we may eventually only have a few sportsbook operators to choose from.
Mac Daniel is a South Carolina-based freelance writer for PlayOnlineCasino and PlayOnlineSportsBetting. He has experience writing about a wide variety of topics, including healthcare, tourism, non-profit organizations, and most recently casino and sportsbetting news. To check out more of his work, visit www.playonlinecasinomi.com or www.playonlinesportsbetting.com