What are the odds?
Gambling is growing like gangbusters in America
Technology and legal changes are spurring a betting bonanza
NEW YORKERS who wished to gamble used to be limited to a series of peculiar options: a lottery run by the state, raffles run by charities, casinos run by Native Americans, slot machines run by racetracks, horse-betting run by local governments—or a trip outside the state to a more permissive spot such as Atlantic City, New Jersey.
In recent years, however, it is New York that has become more permissive.
The state’s first ordinary, commercial casinos started opening in 2016, although none in the area around New York City.
In 2022 it became legal to bet on sporting events online.
Next year or the year after the state is due to issue three licences to operate a casino in or near the Big Apple.
Jay-Z, a rapper, is teaming up with Caesars Entertainment, a big casino chain, to promote a proposed complex in Times Square.
Wynn Resorts, which runs casinos in Boston, Las Vegas and Macau and is building one in the United Arab Emirates, is proposing a ritzy development by Penn Station, with a school, a park and low-income housing thrown in to appeal to the civic-minded.
Steve Cohen, the owner of the New York Mets, a baseball team, wants to build an $8bn gambling mecca next to their stadium in Queens.
New Yorkers should soon be free to bet with abandon.
It is not just New York: “gaming”, as the industry euphemistically calls itself, is booming across the country.
Some 40% of Americans say they wager on sport—a business that was illegal in every state but Nevada until 2018.
The amount punters bet on sport on apps such as FanDuel and DraftKings was a mere $7bn that year; this year it should reach almost $150bn.
That will generate around $14bn in revenue for the companies concerned.
Online casinos, which bring in around half the revenue that sports-betting does, are growing almost as quickly.
And in October it became possible to bet on election outcomes, which led to a surge in wagers before America voted on November 5th.
Betting on betting
To hear the industry tell it, this is only the beginning.
The leading provider of online sports-betting and online casinos estimates that by 2030 online gambling will generate some $60bn-70bn in revenue each year, three or four times today’s haul.
Then there is the conventional casino business, which generates around $85bn in annual revenue, but would see that number jump if New York and other states mulling new licences, such as Texas, went ahead and issued them.
More esoteric forms of speculation, although not technically gambling in most regulators’ eyes, are growing equally fast.
Day-traders are loading up on futures and options that expire in hours, as a way to bet on how a share-price will move in the very short term.
Most such contracts earn little or no return, but some yield ten or 100 times the initial outlay.
By the same token, much of the enthusiasm for certain cryptocurrencies can seem like a high-octane game of chance.
Tot all of this activity up—betting in physical and online casinos, on sport and on elections—and Americans are on track to wager $700bn in 2024, up from $400bn five years ago.
In addition, they are probably betting several hundred billion dollars more each year on short-term equity moves.
Several different forces have fuelled this explosion.
Legal changes, whether demanded by courts or ordained by legislatures, have been instrumental in opening up new markets.
But so has technology, with mobile phones, geolocation and peer-to-peer betting allowing an array of new gambling formats that simply would not have been possible in the past.
The new formats, in turn, have attracted younger, wealthier gamblers.
These new punters have different habits from the gamblers of the past: activities like betting in online casinos and crypto-trading tend to increase when the economy is doing well, unlike lotteries, which attract more custom when times are tough.
Perhaps as a result, the gambling boom is not upending as many lives as you might expect, although there is some evidence of harm.
State governments all across America, at any rate, seem to believe the benefits outweigh the costs.
On May 14th 2018 the Supreme Court, at New Jersey’s behest, threw out the law that limited gambling on sport to Nevada.
“I sometimes will tell people that one day that will be a company holiday, because it was such an important day in the history of our firm,” says Peter Jackson, the boss of Flutter, which owns a vast portfolio of betting sites, including Paddy Power and Betfair as well as FanDuel, the biggest online sports-betting service in America.
Over the six years since the ruling 38 states plus the District of Columbia have legalised sports-betting (see chart 1).
For a change that must be enacted state by state, and in some places approved by referendum, that is a blistering pace.
In a sense, America is simply shedding an old aversion to gambling.
Early Puritan settlers in New England banned possession of cards or dice, even at home.
A second wave of restrictions dates to campaigns for “temperance” in the early 1900s.
There has been slow, piecemeal liberalisation since, starting with horse-racing and lotteries in many states.
For a long time Nevada was the only state to allow casinos.
A Supreme Court ruling in 1987 paved the way for gambling on Native American reservations.
Some states also allow casinos on boats.
The result is a bizarre hotch-potch and lots of pent-up demand.
Odds and mods
But it is technology, as much as liberal state legislators, that has propelled gambling’s expansion.
After all, online sports-betting and other digital forms of gambling are growing in many markets around the world.
“I think what has really changed, over the last 20 or 30 years, is the impact that technology has had,” says Mr Jackson.
“The Betfair exchange that started more than 20 years ago was one of the first peer-to-peer platforms that let people bet against each other without having a bookmaker sat there in between them.
When people can pull their cell phones out and access the product there now, it gives them a lot more choice than they ever would have had going down to a local bookmaker.”
Sports fans tend to want to bet on their team, and popular teams tend to be the favourites and therefore offer miserly odds.
But such bets, with their meagre returns, do not carry the same excitement as a long shot.
A type of bet called a “parlay” in America and an “accumulator” in Britain gives sports-betting firms a way round this problem.
These give customers the ability to combine a series of wagers in a higher-risk, higher-reward (and higher-margin-for-the-bookmaker) compound bet.
They are priced by bookmakers using sophisticated models, which allow gamblers to dream up any combination of events they like—that the Kansas City Chiefs (an American football team) will win their next game by more than ten points, for example, and that Patrick Mahomes, their star quarterback, will throw passes totalling at least 300 yards in length and that Travis Kelce, their tight end, will catch passes totalling at least 100 yards in length.
These bets pay out only if all the predicted events occur, and therefore have long odds.
The popular parlay bets on FanDuel and DraftKings pay 25- or 30-to-1.
Technology also allows betting to occur as a sporting event takes place.
A decade ago punters, where sports-betting was legal, would have to visit a betting shop to make a wager before watching the game from home or a pub.
Now they can bet at any time.
The odds update with every play.
Fans love this.
On the opening day of the American football season this year betting apps detected nearly 21,000 attempts to wager online from a stadium in Missouri, even though sports-betting was still illegal in the state.
(Voters in Missouri approved its legalisation in a referendum in November, but the margin was so narrow—50.1% in favour—that a recount may be coming.)
Despite the punters’ obvious enthusiasm, it was not initially clear how profitable online sports-betting would be.
When it first got going in America in 2018 the hold percentage—the share of the total amount wagered that companies keep in revenue—was a miserly 5% or so.
Table games in casinos tend to yield a healthier 15-20%, slot machines around 9%.
Moreover, the big sports-betting firms’ revenue was quickly ploughed back into advertising and promotions, which often take the form of free wagers.
Over Thanksgiving FanDuel was offering a free $150 to bet if a customer deposited $5, wagered it and won.
And before the election FanDuel and DraftKings together spent more than $40m trying to persuade Missourians to legalise sports-betting.
Until recently neither firm was profitable.
But the economics are improving.
The hold percentage has climbed steadily, probably helped by enthusiasm for long-shot parlays, to around 10-11%.
Flutter turned a profit for the first time last year.
It paid a paltry $158m to buy a 58% stake in FanDuel back in 2018 before spending a heftier $4.1bn to increase its stake to 95% in 2020.
Both sums now look like pocket change, however.
FanDuel commands a 53% market share in online sports-betting in America.
Flutter should earn about $7bn in revenue from the business in 2024.
Its market capitalisation has soared, even as conventional gambling firms have stalled (see chart 2).
It is now the most valuable gaming company in the world.
A major wager
There is more to come.
Just as states have embraced sports-betting, a few have also legalised online versions of casino gambling—poker, blackjack, slot machines and so on.
iGaming, as it is known, is legal only in Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia.
Because location software on phones is so accurate, use of iGaming apps really is restricted to these states.
Yet even this small slice of America’s gamblers generated around $6bn in revenue for gaming firms in the first nine months of 2024, roughly 60% of the sum generated by sports-betting firms.
Should more states legalise such gambling, the business will presumably grow accordingly.
It is easier to make money from, since there is no chance a well-informed gambler can outfox the house.
It also lends itself to more frequent betting, since spins of a roulette wheel take up much less time than sports matches.
Sports-betting and iGaming already account for nearly a third of all gambling revenue in America, a proportion that is growing fast (see chart 3).
Another potential area of growth is elections betting.
It is still a rounding error in comparison with conventional gaming or sports-betting—but that is because it was severely restricted until October, when a federal judge struck down a near-total ban put in place by the Commodity Futures Trading Commission (CFTC).
Kalshi, the platform that brought the suit against the CFTC, ended up handling $500m in wagers on this year’s election, of which $300m were placed in the week of the election itself.
Perhaps the best proof of Americans’ growing taste for risk is the boom in short-dated options.
These derivatives work a bit like lottery tickets.
A trader pays a “premium” to secure a contract that will become valuable only under certain circumstances: for instance, if shares in Nvidia, a chipmaking firm (currently trading at around $145), rise above $150 in a week.
The notional exposure to the stock might be $10,000, or 70 shares.
If Nvidia’s shares rise to $160, the trader gets to buy 70 at $150, and can pocket the difference (a handsome $700).
On that notional $10,000 investment such an option might only cost $60.
Early in 2020 the retail share of such derivatives leapt from around a third of total options contracts to more than 40%.
The share rose again in early 2021, to almost 50%, as retail punters, who shared stock tips and investment “porn” (large gains or losses) on social media, ganged together to buy options or shares in a firm called GameStop—pushing its price up 30-fold in a matter of weeks.
Nate Silver, a political modeller and former professional poker player, considers short-dated options a form of gambling.
While writing a book on risk-taking he was contacted by Runbo Li, a prolific trader in them.
Mr Li, who has a master's degree in economics and has worked in data science, began using options to invest in the stockmarket in 2017.
He won big on his first trade—an option to buy Nvidia shares—and began investing huge sums.
He has since lost around $1m on such trades.
“It could easily have been something else like sports gambling,” Mr Li told Mr Silver.
“But for me, it was easier to rationalise trading options because it has that guise of investing.”
It is “the perception that options trading is a skilled activity”, writes Mr Silver, that makes it “hard to quit”.
That raises the question of how harmful all this new gambling is.
Encouragingly, the types of gambling that are growing in popularity are pro-cyclical, meaning that people indulge in them more when the economy is doing well.
Given how strong the economy has been in recent years, the growth of gambling may simply reflect how prosperous Americans are feeling, rather than hint at a deep social malaise.
That does not mean this gambling’s growth is harmless, however.
Because of the way legalisation has occurred—state by state—it is relatively easy for economists to measure what the impact has been, by comparing what happened to households in states that have legalised with the fortunes of households in nearby states that have not.
A paper by Scott Baker of Northwestern University and colleagues finds that after sports-betting is legalised households that gamble tend to spend around $720 a year on it.
A chancing blow
Perhaps because those who bet on sports tend to be wealthier than the norm, sports-betting seems to crowd out investing, rather than consumption of other things, such as entertainment (money spent on that actually rises in conjunction with sports-betting).
The authors find that for every $1 wagered, households that bet on sports contribute a little under $1 less to their investment accounts.
(Only a small slice of these investments are via crypto platforms or brokerages that offer short-dated options.)
Credit-card debt tended to rise in betting households.
And these effects were strongest in households that were already under financial strain.
Illustration: Pete RyanA second paper by Brett Hollenbeck of UCLA and Poet Larsen and Davide Proserpio of the University of Southern California looks at things like credit scores and bankruptcy.
They find a small but negative effect on credit scores (these drop by about 0.3% after legalisation).
They also find a substantial increase—a 25% jump—in the probability that a household goes bankrupt.
To be clear, these risks are very small to begin with, but an increase of that magnitude would suggest an additional 30,000 bankruptcies a year across the states that have legalised online sports-betting.
A third paper finds an uptick in incidents of domestic violence in states with sports-betting.
As bad as that may sound, many state governments have long tolerated such negative consequences for the sake of the extra revenue gambling can bring.
State lotteries, for instance, tend to be played much more regularly by lower-income households than rich ones.
And the state tends to keep around 30% of the money spent on tickets, which is a much higher hold percentage than those of sports-betting firms—making state lotteries a much worse deal for the gamblers.
Yet 45 of the 50 states operate such lotteries.
The most important consideration for state governments tends to be how much money ends up in state coffers.
That depends on the specifics of each state’s laws.
So far the sums raised tend to be small relative to state budgets, but meaningful nonetheless, especially in places where the pandemic hit tax collections hardest, such as New York.
Its revenues are projected to fall 2% short of expenditure over the next three years.
When it legalised sports-betting it imposed the highest tax take of any state, at 51% of gaming revenue.
Although sports-betting started in the state only in 2022, it is currently contributing about 0.4% of state revenues, not a sum legislators would want to forgo, given the state’s fiscal straits.
In fact, the budget shortfall is likely to encourage New York’s politicians to double down, as it were.
They will probably encourage state officials to issue the promised casino licences promptly, rather than letting the selection process drag on indefinitely.
The gambling industry has won over local unions: one recently renamed itself the “Hotel and Gaming Workers Association”.
Local businesspeople are keen, too. “In business, everyone likes a new taxpayer who isn’t them,” says Kathy Wylde, boss of the Partnership for New York, a business association.
There is still opposition, chiefly from NIMBYs of various sorts rather than anti-poverty campaigners.
But Ms Wylde thinks the licences will be issued, at the latest, towards the end of 2025 or early in 2026, ahead of the next round of state elections.
So will Manhattan soon boast its own casino?
“I wouldn’t bet against it,” she says, “There is a lot of money at stake.”
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