Economics of sportsbooks and why they ban the best bettors
5 hours ago
- #gambling-economics
- #sports-betting
- #business-models
- Sportsbooks rely on casual bettors who lose money, as professional bettors (sharps) can significantly impact their profits.
- Sportsbooks operate on thin margins due to high state taxes (up to 51%), customer acquisition costs (~$300 per user), and low house advantages.
- Parlays, which have higher vig (up to 20%), are heavily promoted to increase sportsbooks' structural hold on handle (11-14%).
- Sportsbooks use psychological tactics, such as celebrity endorsements and social proof, to encourage users to place parlays.
- Sharps are restricted or banned by sportsbooks because their bets have positive expected value, which is unprofitable for the business.
- In the U.S., businesses, including sportsbooks, have the right to refuse service to customers, allowing them to limit sharps legally.
- Advertising and promotions are major expenses for sportsbooks, with DraftKings spending ~$1 billion annually on marketing.
- Sports betting is taxed heavily in many states, with New York, New Hampshire, and Rhode Island imposing a 51% tax on revenue.
- The sportsbook model differs from exchanges, where users bet against each other, and the platform takes no risk (e.g., Betfair in the UK).
- DraftKings and FanDuel dominate the U.S. market with a combined 75% share, focusing on attracting and retaining casual bettors.