The sports betting industry is a multi-billion-dollar business, but how profitable is it really? How much does the sports betting industry make? Let’s take a quick look…
Legal Sports Betting
The first thing to consider when analyzing the sports betting industry is the legality of sports wagering. Most countries, including the United States, still ban sports betting, but it is gradually becoming legal to place bets on sporting events. That is certainly good for the industry, but it also means that the sports betting operators must depend on places and circumstances where they are legally allowed to operate. That makes the business significantly less profitable.
In 2016, Nevada sportsbooks took in $9.375 billion alone on legal sports bets. That was up from $6.9 billion in 2015 and $4.225 billion in 2014. The United States, where sports betting is largely legal, is the largest market in the world by far. As a result, the legal sports betting market is quite promising, and it provides a steady income stream for the industry.
Sports Betting Operators
The second thing to consider when analyzing the sports betting industry is the structure of the business. The sports betting operators, also known as bookmakers, take bets from the public and then pay out winnings to the respective players. In order to stay in business, they must find ways to continuously attract new customers and retain the customers they have. That is where marketing comes in.
The better a sportsbook’s marketing strategy, the more likely they are to succeed in gaining new customers. The key to a successful marketing strategy in the sports betting world is to find the best possible odds for your events. That way, when a potential customer lands on your website, they will see attractive odds and make a purchase immediately.
Sportsbooks Gross Revenue & EBITDA
The third thing to consider when analyzing the sports betting industry is the structure of the business on a gross revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) basis. This is particularly important for those considering entering the industry because they need to know whether or not the business is profitable. Unfortunately, most sportsbooks only report annual gross revenue and don’t offer much information about their profits and losses. Still, it is possible to glean some critical information from these numbers.
On a revenue basis, the sports betting industry is significantly more profitable than the broader casino industry. In the United States, for example, the casino industry took in $12.8 billion in revenue in 2016, but the sports betting industry took in $27.25 billion. That is a profit margin of 44.3%. It would also mean that in 2016, the United States casino industry had an EBITDA margin of 4.8%.
In terms of profitability, the sports betting industry is also significantly better than most other industries, particularly financial services and insurance. In 2016, the casino and insurance industries took in $13.5 billion and $13.6 billion, respectively, and the financial services industry took in $27.3 billion. The sports betting industry had an EBITDA margin of 15.6% and 11.2%, respectively.
Cost of Goods Sold (COGS)
The fourth thing to consider when analyzing the sports betting industry is its cost of goods sold (COGS). Essentially, this is the cost the business incurs to bring merchandise to market. It is a key consideration because the sports betting industry is an expensive business to operate. The better the strategy, the higher the cost of goods sold.
The basic cost of goods sold of a casino, for example, can be as high as 66%, while that of a sports betting business can be as high as 85%. That means that if you are considering entering the sports betting industry, you need to significantly increase your profitability before you start paying back your initial investment.
Operating Expenses
The fifth thing to consider when analyzing the sports betting industry is its operating expenses, particularly the marketing and advertising expenses. These are the expenses that the business incurs to offer sports betting to the public. Typically, the better the strategy, the higher the operating expenses.
Marketing and advertising in the sports betting world is extremely expensive. The cost per click is often very high, particularly in today’s market, so advertisers must ensure they are getting the best bang for their buck. Still, if you are entering the sports betting industry, you need to be prepared to spend a significant amount of money on advertising and marketing to make it a profitable venture.
Financial Analysts’ Takeaway
The final thing to consider when analyzing the sports betting industry is the input and output used to create products. Essentially, this is the amount of money spent versus the amount of money made. It is key to understanding how the business works because, as a financial matter, the performance of the industry will largely depend on this number. Still, it is extremely difficult to get a handle on this particular number without some outside help. That is where a financial analyst comes in.
In the end, the more a business understands about its costs, the more they will be able to control them and the better they will be able to optimize profits. In terms of overall profitability, the sports betting industry is a significant challenge, but it is also a very promising one. It is difficult to find exact figures, but the best guess for the industry in 2016 was about a 16% profit margin on a revenue basis and an 11.2% EBITDA margin.