Fight for the United States. Who wins it and why is it so difficult and important?
For several years, the online sports betting market in the United States has been widely regarded as extremely promising. However, it was not always so. It has been shaped by the long and tortuous history of betting in the various American states, and the law – in effect for 26 years – which banned this branch of gambling, had a huge influence on the today’s market. Not until many years later, thanks to the efforts of important politicians led by Senator Raymond J. “Ray” Lesniak of New Jersey, they succeeded in breaking an extremely thick legislative wall. Exactly since 2018 the operators got the green light they’ve been waiting years for. Finally, they were able to prepare the start on the land they had always dreamed of. Obviously, it was equal with the beginning of fight for shares on the American land.
Difficult beginnings of betting that blocked online business for years
The history of betting in the United States dates back to the turn of the 19th century. Back then, betting on sports events was already possible in New York, but not only. A form of gambling characteristic for this city was primarily betting on political elections, which was practiced on a large scale between 1868 and 1940. Interestingly, at that time the odds were often used as pre-election polls. Generally, however, in that period in the United States, betting on horse races reigned supreme, which was based on the pari-mutuel system.
The real turning point in the history of betting in the U.S., however, came at the end of the 19th century, when professional baseball began. As a result, at the beginning of the 20th century, sports betting gained enormous popularity, but this also resulted in the first major scandals that cast a shadow over the new form of entertainment. It should be noted that in the States at that time there was no law that regulated sports betting, so the players and coaches themselves often tried their luck. This caused an avalanche of arranged sports meetings and consequently there was a huge controversy around betting.
Nevada officially legalized sports betting in 1931, but other states chose not to follow this trend. This meant that the gap in this unregulated area was often filled by mafia. John F. Kennedy, in 1961, signed the Interstate Wire Act to combat illegal activity, and to shift the burden of responsibility for the regulation of this area to the individual states. Nevada was the only state where the bets were popular at the time.
In 1970, Congress reduced the tax that bookmakers were forced to pay, which encouraged more states to legalize this form of entertainment. In the following years, steps in this direction were made by Delaware, Oregon and Montana, and more states were beginning to seriously consider regulating this issue. In addition, in 1979 the Seminole tribe opened the first commercial bookmaker in Indiana which was localized in reservation, and other tribes soon followed the Seminole.
Such rapid growth in this branch of gambling, however, has worried Congress, which, taking into account the controversy over betting and setting results of matches, has decided to deal a serious blow to the growing industry.
Fight for legalization
In 1992, the Professional and Amateur Sports Protection Act was passed. In practice, this meant the almost complete ban of sports betting in the U.S., except for four states, which officially legalized betting before 1991 (Delaware, Montana, Nevada, and Oregon). New Jersey fought to join them until the last moments, but eventually the restrictions extended to this state as well. New Jersey, however, never let go, and the fight to legalize betting lasted there for the next years.
Despite the official enactment of PASPA, the popularity of sports betting in the U.S. continued to grow. The Internet slowly began to spread, and foreign operators with online offerings began to reach out to American players as well. Because, officially, they were not present on U.S. territory, they did not have to worry about legal repercussions.
It was decided to put an end to this in 2006. At the time, the Unlawful Internet Gambling Enforcement Act was passed, which made it a crime to accept money from any person who participated in an illegal online gambling operation taking place in the United States. The law itself did not prohibit online gambling, but it applied to financial transactions involving online sports betting. The main goal of the UIGEA was to eliminate gambling websites from the United States. This led to numerous controversies and disputes.
Antigua and Barbuda have demanded that the World Trade Organization impose sanctions on the U.S. for failing to comply with international law. The U.S. Congress appealed to moral principles, but this proved insufficient for the WTO and Antigua’s request was granted. However, the problem of ban of sports betting continued to grow.
– To all those who care about maintaining the status quo – to the sports organizations that take the deceitful position that betting will “ruin the purity of the game” and to the Nevada-based gambling conglomerates that have enjoyed control of sports betting in the state for the past 20 years – I respectfully say, “Come to us!” – said Raymond Lesniak, the lawmaker who, in 2012, requested the repeal of the federal ban on New Jersey. – The sooner you challenge this unconstitutional federal ban, the sooner we can jointly overturn it in the courts and make it possible for New Jersey and other states to compete on the same terms as the rest of the country when it comes to sports betting – he added.
Raymond Lesniak – U.S. Democratic Party politician, served in the New Jersey State Senate from 1983 to 2018
The issue of ban of sports betting has invariably electrified residents of many states. A nationwide survey conducted in 2010 by Fairleigh Dickinson University showed that 67% of Americans do not support the legalization of online betting sites, while only 21% said they support legalization. In a similar survey conducted in December 2011, 42% of Americans approved the idea of legalizing sports betting and exactly the same percentage of U.S. residents opposed the idea. However, the entire bookmaking industry breathlessly followed what was happening in New Jersey. In that state, 52% of residents were in favor of legalization, while 31% were against it. This was the first sign of coming changes. – Sports betting is something quite common for many New Jersey residents, but the most part of the state does not supervise it in any way, does not tax it, and does not make any revenue from it – said Donald Hoover, a professor in the International School of Hospitality, Sports, and Tourism Management at FDU. – If the first states allow sports betting and start profiting from it, others will quickly want to follow them – he was echoed by Peter J. Woolley, a professor of political science.
Peter J. Wolley – professor of political science, executive director and founder of PublicMind
In January 2012, New Jersey Governor Chris Christie, despite a federal ban, signed a law allowing sports betting in the state. The idea gained the right level of support in a referendum held in 2011. This was largely thanks to Raymond J. Lesniak who, despite numerous failures, did not give up in his efforts to overturn PASPA. It later turned out that the effort was definitely worth it. Americans’ attitude toward sports betting has indeed begun to change over time. In November 2014, as many as 66% of respondents agreed with the statement that state authorities should legalize betting despite the existence of federal law. New Jersey’s case was soon taken up by the Supreme Court, and in May 2018 it ruled in favor of the state, which opposed the existing ban. Thus, the 1992 PASPA law was declared unconstitutional and repealed. Shortly after the verdict was announced, New York and Rhode Island announced that they began preparations to legalize sports betting.
Everything began in 2018, as Delaware became the second state after Nevada to legalize betting under the new rules, with New Jersey following it on June 11, 2018. Other states that joined the ranks were: Mississippi, West Virginia and New Mexico. With the legalization of betting, one of the most promising online markets in the world started in 2018 as well. Today internet sports betting is legal in 26 states, and Massachusetts is ready to open the market.
How does the online market look like in the U.S. these days?
The online market in the United States continues to grow, but remains highly diversified. Various states differ in their regulations and licensing rules. Which markets are doing the best today?
It may not be particularly surprising that the state that contributed most directly to the repeal of PASPA in 2018 is collecting the fruits of this today. New Jersey is a very competitive and operator-friendly market that sets the standard for others. There are 21 bookmakers on it, and in the future there may be even 20 more. New Jersey remains the absolute leader in the entire U.S. market, although many argue that the startup of online betting in New York could be a danger to New Jersey’s dominance, for no other state has had such a start as New York.
Almost from the first day of the market’s operation, January 8, 2022, New York clearly bounced back from the others and showed that it has ambitions to dethrone New Jersey for good, which is slowly being described as the second Las Vegas. Many have calculated that, due to long lack of regulation, New York lost more than $1.3 billion in revenue, but clearly the lost time is being made up. There are currently nine operators in the New York market led by the largest: FanDuel, DraftKings, Caesars and BetMGM.
One of the leading U.S. markets is also undoubtedly Michigan. The online market started here at the beginning of 2021 and filled up very quickly. The maximum number of fifteen operators was reached immediately, and it’s hardly surprising, since we’re talking there about a state that loves sports, which boasts teams in all the top American leagues. It is also one of the few states where online casinos are legal. It is expected that despite the rapid spread of sports betting in the Midwest, Michigan’s position is strong enough that the state will easily maintain it in the next few years.
Also consistently fighting for its position, as of the start of 2019, is Pennsylvania, which remains one of the largest markets in the country and all the time ranks among the top five most attractive states for operators and players, even despite higher taxes and fees. These factors and a limit of only 14 operator licenses may still reduce Pennsylvania’s potential, but its large population and well-known sports teams make it one of the most lucrative markets in the country.
Speaking of prominent markets, one cannot fail to mention also about Nevada, which will always hold a special place in the American gambling world. However, it must be admitted that this market is not very player-friendly, as Nevada invariably requires personal registration. According to it, customers are required to visit one of partner casinos of each operator to complete their registration and make their first deposit. This is precedented on the background of the country. The entire local industry was hit hard by the COVID-19 pandemic, and major operators performing in Nevada, including MGM and Caesars, have been fighting all along to get the requirement lifted. The position the state developed for itself years ago, however, makes it impossible, for even such unusual requirements for today’s times, to seriously harm Nevada.
Mention should also be made of several aspiring markets that have really strong potential. We are talking, for example, about Illinois, where online betting started in June 2020. It should come as no surprise that one of the most populous and sports-interested states also has one of the best online betting markets. Illinois regularly ranks among the top five states in terms of tax revenue and the amount of bets made. The Illinois market also has no shortage of major brands like DraftKings, Caesars and BetMGM.
The online sports betting market is also booming in Colorado. Many say this is due to extremely operator-friendly regulations. The issue has not slipped the attention of lawmakers, who have finally felt the effects of low income from taxes. It is possible that Colorado is facing tighter regulations in the near future. However, this still does not change the fact that the state has an extremely attractive market, which already has enough space for 26 bookmakers, but many believe that this number could soon increase.
The diversity of the U.S. market can be evidenced by the example of Iowa, where the market is steadily growing, but for good reason. There are currently more than a dozen operators, though this number can be expected to grow, as the state boasts one of the lowest license fees. It amounts to $45,000 in the first year and $10,000 in each subsequent year of the operator’s activity in the market. The breakthrough for Iowa came in 2021, when the requirement for in-person registration with bookmakers was finally abolished. All companies doing business in the state have seen a rapid increase in new users. Iowa’s strength lies primarily in the degree of wealth of its residents and the fact that it shares borders with states where betting has not yet been legalized.
Arkansas can be placed at the other extreme of the U.S. market. This is because we are talking about a low-capacity market that can accept a maximum of eight operators. Also, in order to appear in the Arkansas online market, companies must choose to cooperate with one of the state’s three casinos and share 51% of their revenue with them. These unattractive terms have effectively discouraged many operators, and brands such as DraftKings and FanDuel are still hesitant about their decision to enter the local market.
Very specific U.S. markets include also Indiana, New Hampshire and Oregon. In Indiana online betting has already launched on October 3, 2019, but it is a relatively small market, with 13 companies currently operating, although according to the law there, Indiana has space for 40 operators. What’s the problem? Well, this market is not very friendly for new bookmakers. Indeed, it has already been dominated by FanDuel and DraftKings. This, however, is nothing in comparison to New Hampshire, Oregon, where the market is limited to one operator, which in both of these cases is DraftKings. This is also similar in Rhode Island, where 100% of the market share is held by Caesars. This is the result of state regulations, which from the beginning assumed the creation of a monopolistic market under the control of local companies. This idea, however, did not quite work out, and it was eventually decided to put the monopoly in the hands of the largest operators.
American triumvirate
While the U.S. online betting market is extremely fragmented among individual states, which have legalized this branch of entertainment under different rules and at different times, the situation becomes much clearer when we look at the shares of individual brands in the overall U.S. market, as well as the markets of individual states. Indeed, the United States has been largely dominated by three operators. According to July 2022 data, FanDuel has the largest share of the U.S. market (46.6%), followed by DraftKings (20.2%), while BetMGM (14.1%) rounds out the podium. Of the remaining bookmakers, only Caesars-owned William Hill (7.5%) approached the 10% limit.
– FanDuel gained a huge advantage in the market, thanks to the fact that by design it was a company based on a slightly different area of entertainment – daily fantasy – which remained legal in the States for people over 18. Even before the market opened, FanDuel, like, by the way, DraftKings, had so a sizable base of users and it was easy to convince them to bet on sports – Pat Porada, a consultant to the iGaming industry in the United States, told us. – Unlike DraftKings, however, FanDuel has scored quite a few successful investments in recent years and can now boast, for example, a unique software, more experienced team or definitely better marketing, At the same time DraftKings has, for example, decided to purchase SBTech – he adds.
– There are a number of such aspects that today translate into this more than 20 percent difference in shares. DraftKings was raking in money, signing, among other things, official partnership agreements with a number of sports teams, and in a while it turned out that the same agreements with the same teams were made by other operators, also earning the title of official partner. FanDuel at a similar time, for example, partnered with former NFL player Pat McAfee, who runs a very popular online program in the United States. He was paid a lot, but, in my opinion, it was a much more sound investment that brought FanDuel a lot of benefits – says Porada.
The balance of power looks very similar when we also consider the individual states. FanDuel does not occupy the top position in only seven of them. However, it should be taken into account that in five states – Arkansas, District of Columbia, New Hampshire, Oregon and Rhode Island – the market is not based on competition, as it is monopolistic in nature. Absolute dominants are Betly (Arkansas), GambetDC (District of Columbia), DraftKings (New Hampshire and Oregon), and Caesars (Rhode Island). The only states where FanDuel actually has failed to dominate the market are Nevada, where William Hill reigns supreme with a 54% market share, and Wyoming where the best remains DraftKings (59% market share).
An interesting case on the map of the U.S. is New York. Back in January, the first month after the launch of online betting, the vast majority of market share was held by Caesars, mainly thanks to highly encouraging bonuses for new customers. When the promotion came to an end, the market began a rapid recovery and FanDuel shares rose sharply to reach 58% during the next four months. What’s more, the three brands that dominated the U.S. market needed just five months to dominate the New York market as well. Indeed, in May, the combined shares of FanDuel, DraftKings and Caesars were as high as 88%.
What’s next?
The online market in the United States will gradually expand, which will certainly open up a number of new opportunities for many operators. The major ones are already preparing for the March launch in Massachusetts, which could prove extremely important for the rest of the U.S. markets. Indeed, Boston may become rather inhospitable city for operators, as evidenced by, among other things, a 20% tax on revenues or strict requirements for safe gambling and marketing issues. In the long run, however, it may turn out that Massachusetts will set a new direction for the entire U.S. online market, as the need for stricter regulations along the lines of those in Europe has been talked about for a long time.
It may be as early as July that residents of the state of Maine will also be able to place their first online bets, but right now no major revolution is in store, as a law signed in April 2022 by Governor Janet Mills allows Maine’s four indigenous tribes to cooperate with commercial operators and offer online sports betting, while creating space exclusively for four online bookmakers.
However, everyone agrees that the U.S. market will develop at an extremely fast pace. According to VIXIO estimates, a company that obtains and analyzes gambling market data, in 2025 the U.S. market will generate between 12.1 billion and as much as 17.7 billion in total gross revenue and will largely depend on legislative changes in individual states. FanDuel, on the other hand, assures that revenues will certainly exceed $22.6 billion by 2030. So it is hardly surprising that the biggest ones decide to make huge investments. This is because everyone is thinking about the perspectives that the future may bring.
– We have a long-term plan. It covers the next five years and refers to certain goals that we must achieve each year to get where we want to be. Our operations have been very consistent from the first day, but we are talking about very specific markets. I am of the opinion that our model works and the future should positively verify this – said last year the CEO of DraftKings, Jason Robins.
