The Business of the Bet

Since the Supreme Court struck down the federal ban on state-authorized sports betting in 2018, a market that barely existed outside Nevada has become a major industry. The question of who profits from it has a more complicated answer than the headline numbers suggest.

The scale of the market

By nearly any measure, legal sports betting is growing fast. According to the American Gaming Association (AGA), sports betting revenue reached $16.96 billion in 2025, up 22.8 percent, on a total handle of $166.94 billion, up 11.0 percent. Revenue grew about twice as fast as the amount wagered, meaning sportsbooks are keeping a larger share of each dollar bet. That works out to a hold of roughly 10 percent. DraftKings, for one, puts its long-run structural hold on sports betting at 10.9%.

Sports betting is part of a bigger picture. Americans lost a record $78.7 billion at legal commercial gaming in 2025, about 9 percent more than the year before, with sports betting among the fastest-growing segments.

States: the clearest winners

For state governments, legalization has been a dependable source of revenue. Taxes paid by regulated gaming operators totaled about $18.1 billion in 2025, a 15 percent jump, much of it earmarked for schools, roads, and other public needs. That figure covers all commercial gaming, not just sports betting, but sports betting is a growing contributor.

Rates vary enormously. New York taxes operators at 51 percent of gross gaming revenue, the extreme case. Others are catching up. Illinois, Louisiana, and Maryland have recently raised their rates, and New Jersey could lift its rate from 13% to 25% of adjusted gross revenue. Governors in Michigan and Arizona have also pushed for increases.

Operators: profitable, but squeezed

The sportsbooks' story is more mixed. For years, companies like DraftKings and FanDuel (owned by Flutter) spent heavily on promotions and advertising to win customers. Now the leading operators are making money. DraftKings has crossed into positive adjusted EBITDA and reaffirmed 2026 guidance of roughly $700 to $900 million. Its business benefits from a largely fixed technology base: as new customers get cheaper to retain, margins should widen.

But that profit is under pressure from several directions:

• Taxes. DraftKings' CFO said tax increases since 2023 will cost the company $200 million a year by 2026. Illinois introduced a per-wager tax, and operators including FanDuel, DraftKings, and Fanatics responded by adding a $0.50 charge per bet for users.

• Investor skepticism. DraftKings' 2026 forecast came in below Wall Street estimates, and shares fell amid concerns that prediction markets are eroding traditional sportsbook demand.

• Limits on passing costs along. Fitch observed that operators could try to offset higher taxes with worse odds or surcharges, but risk losing customers to promotional pricing, illegal betting, or prediction markets.

Operators argue that online casino games are part of the answer. These products typically offer higher margins, lower promotional costs, and steadier revenue, which explains the industry's push to legalize them in more states. The numbers lend the case some support: online casino revenue reached $10.7 billion in 2025, up 27.6%.

The two competitors legalization was supposed to beat

One of the main arguments for legalization was that it would pull bettors out of the black market and bring their money under regulation. Progress has been real but incomplete. The AGA puts the take of unlicensed operators, from offshore sportsbooks to unregulated online casinos, near $54 billion a year, costing states over $15 billion in taxes. That is an industry-sourced estimate, so treat it with some caution, but it shows how much activity remains outside the system.

A newer rival is prediction markets, which offer sports event contracts under a different regulatory framework. The AGA claims these platforms have diverted more than $500 million in potential sports betting tax revenue. Whether they count as gambling or financial products is a fight that is still being worked out in courts and legislatures.

Who doesn't profit

The model works because the house wins on average, so bettors as a group lose, and that gap is where the sportsbooks' revenue comes from. Professional and sharp bettors face additional headwinds. One analysis argues that recent federal tax changes make it much harder for professional bettors to turn an after-tax profit.

There are also costs that don't appear on any balance sheet. Gambling addiction, household financial strain, and the expense of treatment and regulation are real, though they're harder to measure and are usually left out of "profitability" calculations. A full accounting of the industry's net benefit to society would have to weigh them against the tax revenue.

Conclusion

Legal sports betting is profitable, but unevenly. States have gained a growing revenue stream, and the leading operators have reached sustained profitability after years of heavy spending. But the same tax increases that make it lucrative for governments are squeezing sportsbook margins, while offshore books and prediction markets compete for the same customers. Over the next few years, the industry's profits will depend less on how many people bet than on how states set their tax rates and how regulators handle those competitors.

Sources

• American Gaming Association, "Commercial Gaming Revenue Hits $78.7 Billion in 2025, Driving Record $18.1 Billion in Gaming Taxes Nationwide" (americangaming.org) Source ↗

• Public Gaming International, "US commercial gaming revenue reaches record US$78.6bn in 2025" (publicgaming.com) Source ↗

• Public Gaming International, "Commercial gaming revenue was record $78.7 billion in 2025" (publicgaming.com) Source ↗

• InGame, coverage of DraftKings' earnings call on tax impact (ingame.com) Source ↗

• Yogonet, "DraftKings shares slide as 2026 forecast falls short of Wall Street estimates" (yogonet.com) Source ↗

• Casino.org, "DraftKings, Flutter Credit Ratings Safe Despite Tax Hikes" (casino.org) Source ↗

• Sigma World, "FanDuel urges US states to ease sports betting taxes" (sigma.world) Source ↗

• MarketBeat, "Trump Tailwind? How the BBB Could Boost DraftKings Stock" (marketbeat.com) Source ↗

• Walnut Invest, "DraftKings (DKNG) Stock Forecast: What Could Drive It in 2026" (walnutinvest.com) Source ↗

Note: Figures are from 2025 and early 2026 reporting. Several sources are industry or trade outlets; AGA estimates in particular reflect an industry perspective.