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[toc]In the past week, I’ve seen at least three references claiming revenue in both cases Sports betting or daily fantasy sports is much higher than it really is:
  • A story about the possible effects of legal sports betting For a California Racetrack: “Even a tiny sliver of an estimated $ 400 billion industry would be enough to support the circuit’s satellite betting center, which has been dying into slow decline for years.”
  • An article about daily fantasy sports: “A $ 3 billion industry is returning to Delaware almost a year after being called upon by its operators.”
  • A since then edited post of the American Gambling Association That said, the offshore sports betting business would be almost a top 10 company on the Fortune list if it were legal and regulated in the US.

None of these characterizations of any of these industries is remotely correct. And these are hardly the only cases of such incorrect characterization.

Why is this happening and why is it a problem?

Treat = / = revenue first

For all of the above references are the authors Merging handle and sales for the industries.

Handle is how much money bettors / DFS users spend on betting / entry fees.

In sports betting, illegal offshore trading is estimated at around $ 150 billion. (Previous estimates put it as high as $ 400 billion, although the truth is that it is difficult to estimate the amount of money invested in the black market.)

For DFS, the handle was over in 2016 $ 3 billion, most of it taken from Draft kings and FanDuel.

These differ significantly from the income for sports betting and DFS, which only make up a fraction of it.

Income from sports betting can be variable, but unless the odds makers are really bad at their job, they should be able to expect positive net income on an annual basis. Sometimes the books pay out more than they win for individual bets, and sometimes vice versa. In Sports betting in Nevada, Sports betting generally hold just under five percent of the grip, according to dates of the UNLV Center for Gaming Research.

They take all entrance fees at the DFS locations. This conversion corresponds to about 10 to 15 percent of the handle. In 2016, Eilers & Krejcik Gaming reported that this number is over $ 300 million.

Revenue is pretty predictable in DFS unless the sites guarantee contests Run overlay (if the prices paid exceed the participation fees). FanDuel and DraftKings usually avoid this scenario these days.

So why does this bug accompany Sports Betting / DFS?

First off, the “handle” figure is way sexier. Hundreds of billions! Billions!

It also just represents a fundamental misunderstanding of the industries and how they work.

In other industries, the money companies “handle” generally equals sales. When you pay a company for a good or service, that money is in turn used by the company to buy products, pay employees, etc. (Profit is another topic we won’t even go into here.)

The money that flows through sports betting and DFS operators is fundamentally different. It is simply money that is “handled” by a book or DFS site for a while before it is paid out. (Unless of course, it’s just Stolen from customers by a DFS operator.)

Handle cannot be equated with sales in the traditional sense. Handle is a useful number for determining volume and growth trends in both industries. But revenue is the money that goes into the pockets of sports betting, casinos and websites.

So who cares if they’re wrong?

Why does it matter?

The biggest problem in my opinion is that it settles in unreasonable expectations by states that want to regulate and / or make money with both industries. If anyone in Delaware thinks the state is getting a portion of $ 3 billion from DFS, they are in for a rude awakening.

Don’t get me wrong: there is a huge opportunity for states legalizing sports betting and the casinos and racetracks that offer it. But when you start tossing around numbers like “$ 400 billion”, politicians and others prepare all disappointments.

We saw this at work in New Jersey, where Governor Chris Christie said he expected legal NJ online casinos to generate a billion dollars in his condition half a year after launching in 2013. This was a ridiculous prediction; It took a while to reverse the perception that NJ was far from being a great blessing for atlantic city. (Online gambling in New Jersey the market continues to grow and generates more than $ 20 million per month.)

Sports betting ensures your own income. But the added benefit of attracting bettors to land based deals is also a huge benefit.

Regardless, instead of overestimating the market – or mistakenly mixing sales and handling – we would all be better off just using the correct (and reasonable) numbers.