Online gambling — primarily sports betting and iGaming (casino games, poker, slots) — has undergone a rapid expansion in the United States since the Supreme Court struck down PASPA (the Professional and Amateur Sports Protection Act) in May 2018, opening the door for state-by-state legalisation.
The US online sports betting and iGaming market has grown from essentially zero in 2018 to over $15 billion in gross gaming revenue (GGR) annually by 2024, with 38+ states legalised for sports betting and over 20 states legalised for iGaming. The market is still expanding as more states legalise, and the competitive dynamics — massive customer acquisition spending followed by gradual rationalisation — are transitioning from growth to profitability.
Online Gambling Business Models
Sportsbook Operations
DraftKings, FanDuel (Flutter Entertainment), BetMGM (MGM Resorts + Entain), and Caesars Sportsbook operate digital sportsbooks. Revenue = gross gaming revenue = total bets wagered × house hold percentage (typically 8–12% of handle, before promotions). Net revenue after promotional bonuses runs 5–8% of handle.
The key economic insight: sports betting is a volume business at thin margins. The operators use massive marketing and promotional bonuses to acquire customers, then attempt to retain profitable bettors through app engagement, loyalty programmes, and cross-selling into iGaming.
iGaming (Online Casino)
States that legalise iGaming (currently NJ, PA, MI, CT, WV, RI, DE) generate much higher GGR per user than sports betting — casino games have higher hold percentages (3–8% for table games, 8–15% for slots) and lower promotional intensity. iGaming GGR per active user can be 5–10× sports betting GGR per user.
DraftKings’ iGaming revenue is a higher-margin business than sports betting and is growing rapidly as more states consider legalisation. Penn Entertainment’s ESPN Bet partnership is primarily sports-focused.
Media Partnerships (ESPN Bet)
Penn Entertainment licensed ESPN’s brand for its online sportsbook (ESPN Bet) in exchange for $1.5B in media value to ESPN and ESPN’s parent Disney. The theory: ESPN’s audience of highly engaged sports fans is a natural customer acquisition channel for sports betting. ESPN Bet has struggled to gain significant market share against more established DraftKings and FanDuel.
Daily Fantasy Sports (DFS)
DraftKings’ original business — daily contests in which participants draft virtual lineups and win prizes based on real player statistical performance. DFS is regulated differently from gambling (classified as a game of skill in most states) and was DraftKings’ business pre-PASPA. DFS revenue has declined as sports betting provides a simpler engagement mechanism.
Revenue Models Compared
| Model | Revenue Basis | Gross Margin |
|---|---|---|
| Sports betting GGR | Handle × net hold % (after promos) | 25–35% (market share dependent) |
| iGaming GGR | Table/slot bets × hold % | 35–45% |
| Daily fantasy sports (DFS) | Entry fees × rake | 40–50% |
| Media brand licensing (Penn/ESPN) | Fixed deal + market share economics | Variable |
Key Companies in Online Gambling
- DraftKings — #2 US online sportsbook (behind FanDuel); leading iGaming operator; rapidly approaching EBITDA profitability; customer lifetime value improvement driving margin expansion
- Penn Entertainment — regional casino operator; ESPN Bet sportsbook; barstool sports (sold); iGaming expansion via Hollywood Casino brand
Key Metrics for Online Gambling Companies
Gross Gaming Revenue (GGR) and Market Share
GGR is the primary revenue metric — total bets minus winnings paid (before promotions). GGR market share between DraftKings and FanDuel is tracked weekly in each state by industry analysts. DraftKings and FanDuel together hold 70%+ of the US sports betting market.
Hold Percentage (Net Hold)
The percent of handle retained as revenue after paying promotions and bonuses. Structural hold (before promos) is 8–12%; net hold (after promos) in customer acquisition phase is 5–8%. As promotional intensity declines with market maturation, net hold should improve toward structural hold — a major margin driver.
Customer Acquisition Cost (CAC) and Lifetime Value (LTV)
Online gambling is a customer acquisition business. CAC has been extremely high ($300–$500+/customer in early legalisation states) due to intense competition and promotional wars. LTV (net revenue from a customer over their lifetime) in sports betting/iGaming can be $500–$2,000+. The unit economics turn positive as markets mature and CAC normalises.
Adjusted EBITDA Margin and Path to Profitability
DraftKings has been investing heavily in customer acquisition; the market is watching for the inflection to structural EBITDA profitability as marketing intensity declines in mature states. DraftKings guided to positive adjusted EBITDA in 2024 — a significant milestone in the maturation story.
The iGaming Expansion Opportunity
The biggest potential catalyst for online gambling stocks is the expansion of iGaming legalisation. Currently only 7 states have legal iGaming; if the 10 largest states (including California, Texas, Florida, New York) were to legalise, the total addressable market would multiply several times over.
Online casino economics are fundamentally better than sports betting: higher hold percentages, lower promotional intensity, and 24/7 availability create better unit economics. DraftKings’ iGaming business is already profitable; more iGaming-legalised states would dramatically improve the blended margin profile.
Key Comparisons
Related Glossary Terms
- EBITDA — the profitability milestone investors track for online gambling operators
- Gross Margin — hold percentage and promotional intensity determine gross economics
- Free Cash Flow — the FCF inflection as CAC normalises and marketing intensity falls
- Operating Leverage — fixed technology costs leveraged against growing GGR