Bruin Sports Analytics
What will the U.S. Sports Betting Market be in 2025?
By: Garrett Malone
When the NFL partnered with gambling conglomerates DraftKings, FanDuel, and Caesars Entertainment to make them the official sports betting partners of the NFL, it was made clear to sports fans and stakeholders across the world that sports betting is here to stay. What once was a taboo issue in sports that leagues wanted nothing to do with, sports betting is now a central part of the sports industry. From a sports fan's perspective, it has become all too common to see sports betting commercials and promos, game odds and spreads on ESPN, paid promotions from celebrities, and even the shameless recognition of a team hitting the over during live game broadcasts. It all started when the Professional and Amatuer Sports Protection Act (Federal ban on sports betting) was overturned by the Supreme Court in May 2018, giving the freedom to individual states to decide if they want to legalize sports betting. Since that time, states have been rapidly legalizing sports betting across the U.S. with 23 states currently offering some form of legal and regulated sports betting with 16 of those states offering online sports betting.
Looking at the volume data (total amount bet) shown by the visual, it is clear that this is a massive industry that is continuing to grow. In just 8 months into 2021, there has been $29,883,720,380 wagered so far which is 227% greater than the $13,138,855,348 bet in 2019 and 139% greater than the $21,564,471,838 bet in 2020. Looking deeper into the data, it is apparent that states that offer online sports betting as an option in comparison to strictly having only in-person betting at casinos have exponentially more money being wagered.
Almost 97% of the amount wagered 8 months into 2021 comes from states that have online betting as an option. It is understandable that people want to make bets on their phone versus going into a casino. It can be compared to going to a movie theater versus staying at home and watching Netflix. While there is definitely a sentimental value to going into a casino, most people would much rather sit on their couch in the comfort of their own home and make bets, as seen from the data. Online betting also allows bettors to make more bets then they could at a casino such as microbets, which allow bettors to bet on moments within sports games such as who will score the next touchdown or if the next play will be a run or pass. The combination of convenience and wide variety of bet possibilities could definitely explain why online betting is much more popular than in-person. I also noticed that states with a free sports betting market that have lots of sports betting operators for the public to choose from are getting the most volume bet.
Here are some of the top states by volume in 2020 and how many different apps are available to the public in each of the individual states. Although this chart doesn’t include all the legalized states, it gives a clear picture that states with more options of which operators to bet with bring in more volume. States with a free market such as New Jersey and Pennsylvania are taking in huge volumes, while states such as Oregon and New Hampshire that have a monopoly with only one operator are lagging behind.
Now that we have a solid understanding of where the current sports betting market is at, let's get into answering the question: What will the U.S. Sports Betting Market Size be in 2025?
I must first acknowledge that this question presents many challenges. The first one is that many states have yet to legalize sports betting and no one really knows if or when they will legalize. Each legislature is different and will go through different processes to legalize sports betting. Some states can legalize and go live very quickly, while some states may take years to make it happen. This is where I am going to have to make assumptions on which states will legalize and which ones won’t by the end of 2025, and when sports betting operators will actually be able to start taking wagers. I think it is very fair to assume that the majority of states will legalize at some point within the next 3 years in order to obtain tax revenues. More and more states are jumping on the bandwagon of legalizing after seeing the numbers that other states are putting up, and more importantly the tax revenue that they are bringing in.
I believe it's a matter of when, not if, sports betting becomes legal nationwide, it just may happen slower than expected. I am going to be basing my legalization timeline off of the legislature tracker found on legalsportsreport.com in combination with deeper research into the current stance of each state. To make it simple, if I am assuming that a state will legalize sports betting in a certain year, I am going to have them start taking bets in January of that year. It is very unrealistic that all states will go live in January, but I don’t think predicting the exact month perfectly is meaningful or even possible.
Other assumptions that will need to be made is how much each state that already has legalized sports betting will continue to grow, how much each state will wager when legalized for the first time and what the growth rate will be each year. This perhaps may be an even bigger assumption than deciding if they are going to legalize or not because there are so many factors, some known and unknown, that determine how much is going to be bet. To project each state's initial volume and growth, I will be using New Jersey as the state in which I will model the other states after. I chose New Jersey because they have had legalized sports betting the longest and have the most data. New Jersey has essentially become the trendsetter in this industry, and has quickly taken Nevada’s crown for the sports betting capital of the United States. They have the largest handle out of any state by far with over $1 billion bet in September despite them not even being in the top 10 of population size in the United States.
A lot of this success from New Jersey could be due to the fact that they have a free market with many different operators to choose from, which results in favorable and competitive odds to the consumer, and a fair online betting revenue tax rate to operators of 14%. Other states have been taking notice of how New Jersey has structured sports betting, and will likely choose to follow New Jersey’s lead of a free market to maximize tax revenues for their state. It is unrealistic to assume that all states will follow this model, as can be seen by New York’s decision to tax operators at 51%. However, I believe that over the long-term it will become undisputable that a free market in combination with a low tax rate is the way to go in terms of maximizing revenue for the state, which will lead to the vast majority of states choosing to follow suit. Since I am modeling all states' growth after New Jersey, it is assumed that each state is going to be structured the same as them with lots of operators and a lower revenue tax rate.
The state that has had legalized sports betting almost as long as New Jersey is Pennsylvania. They legalized in late 2018, 5 months after New Jersey, and has been very successful itself. It is extremely encouraging to see that New Jersey and Pennsylvania betting volume has a correlation of 94.3%, meaning the trend that the volume is following is very similar. This provides some validation about modeling future states after New Jersey, seeing that the two states with the most data have been following a nearly identical trend.
To model states after New Jersey, I chose to use an Autoregressive Integrated Moving Average (ARIMA) model using New Jersey’s existing volume data. An ARIMA model essentially predicts future values using existing values through moving averages.
This model works extremely well for this purpose because it allows for the growth of New Jersey to continue while taking into account seasonality which is crucial because sports betting volume is highly dependent on the season. Much of the sports betting volume happens late in the year when most sports seasons are underway, especially the NFL, which is the most popular sport for bettors. This model is also very useful because it gives individual projections for each month, which will be very convenient for modeling states after. But as with any projection, there are a lot of unrealistic assumptions when modeling growth this way. This type of model assumes that existing growth will continue to keep occurring year-over-year without any type of slow down. While this may absolutely be the case, it is impossible to tell for sure. Sports betting is relatively new and there hasn’t been enough data to be able to know when growth will slow down or stop. On the other hand, some states may even see faster growth than New Jersey, as Michigan has seen, so perhaps this serves as a relatively moderate projection. Another issue is that there were a few months without major sports in 2020, which had an impact on reducing the amount that was wagered. Since an ARIMA model uses existing trends in the data to forecast future values, the drop in volume does have an impact on modeling that period of time in the future where the amount bet was lower than normal. I considered replacing the volume from the months that were impacted by sports cancellations with betting volume that I thought made sense had there been no cancellations, but it wouldn’t have had much of a material impact since the time of the cancellations were in March through June which is typically a slower time period for betting anyways.
Here are my predictions on when I think each state will go live. As a reminder, if I have a state legalizing in a certain year, I am modeling them as starting to take bets in January of that year. It is unrealistic that this is what will happen, but it is impossible to predict which month that states will actually be going live. The year is hard enough to predict. As shown by the chart, I have almost all of the major states by population legalizing. I am confident that there will be more states that legalize, but if it was a state that had a very low population size it wouldn’t have much of a material impact on the total amount bet in 2025, so it wasn’t worth trying to predict or model.
Some states on the list such as Florida and New York already have sports betting, but they don’t have it in a free market or don’t have online sports betting yet. For example, Florida recently legalized online sports betting, but it is a monopoly through the Seminole Tribe, which does not qualify as a free market. My projection is that Florida will eventually transition over to a free market, which will greatly increase their total volume, and I have that switch starting in 2023. New York has in-person sports betting but doesn’t have legalized online sports betting, so the projection in my model is serving as when online sports betting goes live.
To model each state's initial volume and growth, I took New Jersey’s volume for each month starting from their first month of legalization, divided it by their population size and multiplied that number by each state’s individual population size to give me the projected volume for each month. For each state’s first year of legalization, I used New Jersey’s population multiplier from their first year to account for initial numbers, the second year would follow New Jersey’s second year, and so on and so forth. For states that already have legalized sports betting I followed a similar pattern by using New Jersey’s population multiplier based on how long they have had legalized sports betting. Here is my projection for New Jersey in addition to the top 10 states in the U.S. by population size from now until the end 2025:
Looking at the projection, these 11 states alone are putting up impressive numbers. In 2025, California itself is putting up nearly $50 billion in volume, which is greater than the entire market today. Combined, these states in 2025 have a total volume of $215,006,572,457. To give a comparison, my projection of volume size for the entire year of every legalized state in 2021 is $43,858,886,316. The top 11 states alone would be putting up nearly 5 times the entire market today.
This is the entire projection for every state that I have legalizing by the end of 2025 that were listed in the chart in addition to states that have already legalized online sports betting. The entire volume for 2025 is $342,408,344,234 which represents 780% growth from the 2021 projected volume of $43,858,886,316. Assuming that operators get a hold of 10% (revenue), the market size for 2025 would be $34,240,834,423 again representing 780% upside from the projected market size of 2021 of $4,385,888,632.
Based on the projected market size, it is no surprise to see leagues and stakeholders such as the NFL start to support the growth of sports betting. There are definitely reasons to be skeptical about sports betting starting to become such a central topic in sports, but I would argue that there are many more reasons to be optimistic when looking at the impact of sports betting on increased fan engagement, new sports fans, revenue for the states, increased entertainment from sports games, and growth of the sports industry overall.