Editor’s Note: The state revenue figures below reflect an estimated handle/hold based on previous Super Bowl benchmarks. The actual Nevada Super Bowl LII sportsbook profit was just shy of 1%, while the handle of nearly $159 million set a new record. The numbers below are for illustrative purposes and also demonstrate the volatility of the oddsmaking business, which is a topic for numerous other articles.
The American Gaming Associated estimated on Tuesday that Americans will wager approximately $4.76 billion on Super Bowl LII between the New England Patriots and Philadelphia Eagles — but licensed Nevada sportsbooks will handle only about 3% of that. Americans will bet the other 97% through offshore bookmakers, local bookies, or other shady operators who do business in the shadows and certainly don’t pay state and federal taxes on their revenue.
Americans outside Nevada who want to bet on the Super Bowl (or any sporting event) cannot do so legally because the 1992 federal law known as PASPA forbids states (except Nevada) from licensing or regulating sportsbooks. Sometime this spring, the United States Supreme Court will decide if PASPA — which pits New Jersey against the NFL and other sports leagues — represents an unconstitutional federal overreach into states’ rights.
If the federal ban gets struck down, there’s more than a dozen states (and more expected) preparing to license, regulate and tax sportsbooks. So what could Super Bowl LII have meant to those states and their licensed sportsbooks?
In States Wanting to Legalize Sports Betting, Approximately How Many Dollars Are Wagered on the Super Bowl In That State, And How Many Tax Dollars Could Be Collected?
The AGA’s estimate doesn’t pinpoint where exactly the billions worth of illegal wagers are originating, because that’s impossible. People or entities engaged in illegal activity tend not to report their acts or revenue. There’s some more background and methodology and bigger takeaways after the chart if you’re interested (please be interested); but here is the very quick version for what you’re looking at in this chart just ahead:
- For every state that’s already legalized sports betting (pending a change in federal law) or where lawmakers have at least hinted they’re going to put legislation on the table, we looked at that state’s population;
- Then based on the state’s population versus the entire U.S. population, multiplied by the estimated $4.76B in total wagers to come up with (a) Super Bowl LII dollars wagered in every state; (b) how much money the sportsbooks would likely win (more on this below); and (c) how much tax revenue each state would bring in based on a standard 8% tax rate on sportsbook gross revenue.
A Bit More About How We Arrived At These Numbers And What To Take Away From It All
First, what about Nevada, the wagers actually placed their legally, and you know, three million Nevada residents?
There was no great way to factor in/out their population or the estimated $138.5 million Super Bowl LII wagers (probably will be higher), so I settled for just okay. The total dollars for every state’s estimation, and the percentages for sportsbook hold and state tax revenue, were based on the full $4.76B, not filtering out the $138M. If Nevada sportsbooks took the same pro-rata share of wagers as every other state, the chart would have shown just $43M total wagers for Nevada, which is clearly a fraction of reality.
But this is for illustrative purposes, so rather than screw it up the whole map and try to guess if certain states with bigger NFL markets would have more enthused bettors, or if people bet larger amounts based on average gross household income, I just did the math very objectively. That said:
What About The Other 53.17% of Dollars Wagered?!
Right. The 19 states given projections total nearly half the U.S. population, accounting for $2.23B in Super Bowl LII wagers, $156M in sportsbook revenue and $12.51 million in estimated state taxes that could have been collected, but instead will evaporate into the stratosphere.
As for the “other” 53.17% of the population, actually I lowered it to 52.17 to filter out Nevada’s population in this case, leaving still: $2.34B still wagered illegally across the remaining 30 states, representing the “loss” of a hypothetical $165M sportsbook revenue to legal books and $13.12M that might have become state tax revenue. There’s very good chance that having legal sportsbooks in 12 or 15 states would bring nearby neighbors in state, which is what West Virginia is hoping will happen with its Ohio neighbors. The point is that the percentage of illegal wagers would likely drop in states all over the country if sports betting were legalized in at least a bunch or more.
Speaking of the Feds
Federal law requires Nevada casinos to pay a 0.25% excise tax on all sports bets they take. That’s a percentage of every dollar wagered (the “handle”) not the hold, or what the books keep after paying out the winners. So in this Super Bowl LII scenario, the feds would have taken an additional $5.58 million through the 0.25% excise tax; another $5.86M would have evaporated.
About the Sportsbooks’ Hold and State Tax Revenue
A sportsbook is a volatile business from game to game or month to month. In some Super Bowls the books clean up, taking about 12-20% of all wagers (depending the book and their offerings, acumen, and clientele) as many did in Super Bowl XVLIII when Seattle destroyed Denver. And then other times books get their clocks cleaned like when the 12.5-point underdog New York Giants, thanks to the heroics of one Mr. Eli Manning and an incredible defensive line, stunned the 18-0 Patriots one decade ago in Super Bowl XLII. A lot of people just wanted to bet the heavy underdog — and won.
Anyhow, it varies, but sportsbooks on average keep about 5% over the course of a year. In Super Bowls it’s often a bit higher with variability indicated above as in the XLVIII and XLII examples. But because of all the prop bets and other wagers that produce better for the house, we felt 7% was the right figure to apply for calculating sportsbook revenue in this example with all things and potential outcomes considered.
And as for the tax rate, well, 8% is a shade higher than what Nevada actually applies at 6.75% and below the 10% that West Virginia’s proposed yesterday. Any states imposing a rate above that are dooming their own state coffers.
But of Course, It’s Just One Day
The Super Bowl is the biggest sports betting event/day of the year, of course it’s still just one day. But just one day can still produce $156 million for state-licensed businesses, benefiting all their employees and the casinos at large and all the other amenities. And that $12.5M state revenue can certainly go to myriad good uses, or… maybe to some incredible wastes.
As for the full, yearly scale of the illegal sports betting market, estimates vary between $150 billion and $300 billion. Big range there. But go ahead and pick a number and you’ll see that $4.76B is still a tiny fraction of it.
That said, sports betting tax revenue is not panacea for huge budget deficits. It’s just not. It’s a market that does not belong in the shadows but compared with other casinos games, like slot machines, the margin in sportsbooks is lower and much more volatile.
Finally, One Percent For the NFL?
I’ve spent much of the past week recoiling in horror and dissecting at a 1% “integrity fee” that the NBA wants to collect on all sports wagers in Indiana, New York and across the globe if it could. We’re not getting into that charade here but it’s worth considering what a 1% fee on wagers on the Super Bowl would have amount to: $1.38M. That’s more than Pennsylvania, Illinois and New Jersey and every other state but California and New York would be collecting in taxes in this example. We’ll see if the leagues keep fighting for it.
If you’re still here, well, it’d be a big help if you’d give us a like on Facebook or follow on Twitter. And come back tomorrow for SportsHandle’s Super Bowl LII betting breakdown and prop bet picks. Just doing our part to make sure that $4.76B estimate meets the mark before Sunday…