Sports Betting 2023: More,More,More!

Abstract

Sports betting became bigger throughout 2023 in the United States across multiple key metrics: the number of states now offering legal commercial wagering, the amount wagered, the amount won by sportsbook operators, and the amount of tax revenue collected by states.

If 2022 was the year sports betting went “big time” in the United States thanks in large part due to New York entering the mobile betting ecosphere, then 2023 was a year-long string of instances which made that ecosphere bigger.

Over the calendar year, five states took their first wagers—Ohio, Massachusetts, Nebraska, Kentucky, and Maine. Ohio and Massachusetts spent their “rookie” seasons establishing themselves as Top 10 contributors to monthly handle, revenue, and state tax revenue national totals, quickly cementing themselves among the best of “Sports Betting 2.0” states using 2018–20 and 2021–23 as the two eras.

In a vacuum, it was easy to have every key metric increase substantially versus 2022 when the 2022 number was $0. Keeping the focus solely on Ohio and Massachusetts, the pair contributed to a 29% surge (please see Table 1) in sports betting handle for 2023, with the $89.1 billion wagered among the Top 10 states representing 73.6% of the $121.1 billion wagered commercially in 2023.

Operator revenue haul among the Top 10 states, which includes swapping in Maryland for Colorado as the Old Line State (please see Table 2) was up 56.5%. Maryland's spectacular year-over-year increase can be attributed to a full calendar year of mobile availability, but entering the Top 10 for revenue at Colorado's expense came down to operator performance. Maryland sportsbooks had a whopping 11.1% hold in 2023, more than four percentage points better than Colorado. That led to Maryland having 31.2% more revenue than Colorado with $514.1 million despite the Centennial State having nearly 17% more handle with $5.56 billion.

When it came to tax revenue in 2023, Massachusetts fit the “Sports Betting 2.0” mold by having a 15% rate on retail revenue and a 20% one on mobile. Ohio came by its status midway through the year after Gov. Mike DeWine successfully pushed through a doubling of the rate to 20% that took effect July 1.

Even before that, Ohio was on its way to being a Top 10 state for tax revenue based on operator performance; DeWine doubling the tax rate catapulted the Buckeye State into the Top 5 (please see Table 3) as 57.9% of its $136.8 million in levies came after the rate change.

Removing these two states only puts a slight damper on year-over-year growth from the other eight states in the respective Top 10. Handle (please see Chart 1) when removing Ohio and Massachusetts was still up a healthy 10.7%, with Illinois edging out New York for biggest percentage gain.

New Jersey, which had many people wondering how it would fare as New York's mobile market matured, had a notable resurgence in action in the final quarter of 2023, but its four-month run of double-digit holds from May through August contributed to a 31.9% upswing in revenue (please see Chart 2). The other eight states among the Top 10 had a 22.1% increase in operator winnings sans Ohio and Massachusetts.

Sports betting tax revenue talk always must begin with New York and its 51% rate on adjusted gross revenue, and 2023 kept that talking point at the forefront of any discussion. The Empire State's $168.7 million in increased receipts from 2022 was more than No. 2 Pennsylvania collected in all of 2023.

It also was the key driver of a 42.5% increase in year-over-year tax revenue collected among the Top 10 states. That list is highlighted by the presence of Oregon, which has DraftKings operating as a de facto monopoly through the Oregon Lottery and saw 56.5% of its $26.1 million increase in revenue come from parlay winnings.

Though the national data on parlay handle and revenue is incomplete, the handful of states that provide such information show it to be a huge contributing factor in sending overall year-over-year gross revenue up 43% compared to 2022 (please see Table 4). The seven states where parlay revenue information is available combined for a whopping $1.6 billion in operator winnings, led by Illinois sportsbooks more than doubling their revenue haul to $599 million (please see Chart 3 and Table 5).

Illinois stood out in particular as one mobile sportsbook (Caesars) had its first full year of accepting parlay bets in 2023 while another (BetRivers) greatly expanded its parlay markets. Handle at BetRivers more than tripled to $189.3 million while revenue nearly quadrupled to $38.6 million as the 16.9% hold on parlay wagers was nearly two full percentage points higher than in 2022.

It was also the fourth consecutive year that the increase in the percentage of revenue outpaced the increase in percentage of handle (please see Table 6 and Chart 5), which point to improved operator performance. While sportsbooks have technically beaten the industry standard of a 7% hold every year since the first wagers were taken outside Nevada in 2018, 2023 marked the second consecutive year the national hold was at least one full percentage point higher.

In fact, it was more than two percentage points higher at 9.1%—also more than a full percentage point higher than the 8.06% attained by sportsbooks in 2022. And had revenue figures been available from Tennessee—where the state agency currently does not collect such figures because it taxes handle—it is reasonable to think the hold could have edged near 9.2%.

This again points to the shift in more public wagering towards parlays and prop bets. It is known parlays favor the house more as multi-leg wagers are more difficult to win, but because prop bets are a more fluid market with rapid operator corrections—especially during the NFL season—the house can again be more competitive against the betting public as opposed to the traditional moneyline, spread, and total single-event wagers.

A notable portion of that $3.17 billion in increased operator gross revenue went to the states as total tax revenue soared 42.7% to $2.15 billion (please see Chart 5. and Table 7). New York provided the biggest share of that amount at $862.6 million, over $300 million more than the full-year 2021 total—before the Empire State went mobile and became the largest market in the United States.

In looking at 2024, it may be a challenge to find another year of substantial growth for handle. North Carolina looks to be the only large state that will go live in 2024, which means growth should be more limited versus 2023 when five states went live.

Vermont launched sports betting in January, though that is more about keeping tax revenue inside state borders rather than see people place bets in Massachusetts, New Hampshire, and New York.

Revenue is a different matter, and if January is any indication, that streak of outpacing handle should extend to five years rather easily. A heavy month for handle is all but certain to bring a double-digit hold—gross revenue with five states outstanding is already above $1.16 billion and well within range of toppling December's recent standard of $1.31 billion.

And as operator revenue flows, so does state tax revenue. But a wild card may emerge in Illinois, where Gov. JB Pritzker has called for a rise in the tax rate from 15% to 35%, projecting a $200 million increase in receipts for Fiscal Year (FY) 2025 versus FY 2024. Of course, if Illinois bettors continue to wager on parlays at their current rate, Pritzker may not need to more than double the tax rate to find that $200 million.