Introduction
Online betting takes the casino's statistical edge, explained in how casino operators make money: gaming and non-gaming, and moves it onto a phone. The house still keeps a share of what customers wager over time, but instead of a building full of slot machines, the operator's main costs are marketing, technology and taxes. That changes the economics completely: an online sportsbook can enter a new state without building anything, but it must spend heavily to win customers who can switch to a rival app with a tap.
The leaders have now shown the model can make money at scale. DraftKings reported 2025 revenue of about $6.05 billion, up 27%, on sportsbook handle of $53.6 billion, with a sportsbook net revenue margin of 7.1%, and posted net income of $3.7 million after a $507.3 million loss the year before, according to DraftKings' Form 10-K. This article explains how sportsbooks and online casinos earn money, how state laws and taxes shape the market, and what drives the path to profit.
Online Sports Betting: Handle, Hold and Promotions
- Handle
The total amount of money wagered by customers with a sportsbook over a period. Handle measures betting activity, not revenue: the sportsbook's gross revenue is the share of handle it keeps after paying out winning bets, known as hold.
A sportsbook sets odds so that, across many bets, it keeps a margin on every dollar wagered. The share it actually keeps, its hold, varies with sports results: a weekend of upsets favors the book, while a run of winning favorites favors bettors. Over a year the results average out around a structural hold set by the mix of bets. Parlays, which combine several outcomes into one bet, carry much higher hold than single bets, so sportsbooks have pushed products such as same-game parlays to raise their structural margin.
Promotions then reduce what the book keeps. Operators offer bonus bets, deposit matches and odds boosts to win and retain customers, and the cost comes off gross revenue. The net revenue margin, net revenue as a share of handle, captures both effects: DraftKings said its 2025 margin of 7.1% was up 1.1 percentage points because of better sportsbook hold and more efficient promotional reinvestment.
iGaming: The Online Casino Business Model
- iGaming
Online casino gaming, including digital slots, table games such as blackjack and roulette, and live-dealer games streamed from studios, offered through apps and websites to players in jurisdictions where it is legal.
Online casinos work more like a slot floor than a sportsbook. Their games carry a fixed house edge, so their hold is far steadier than sports betting, which swings with game results. Players also play more often, many times a week rather than around sporting events, which makes iGaming revenue more predictable and, in many markets, more profitable per customer; keeping those players active follows the same retention and churn logic covered in how multi-unit consumer services businesses work. DraftKings' iGaming revenue grew 19.7% to about $1.80 billion in 2025.
| Online sports betting | iGaming | |
|---|---|---|
| Revenue driver | Handle times hold, less promotions | Wagers times a fixed house edge |
| Volatility | High, swings with sports results | Low, settles quickly to the edge |
| Frequency of play | Around sporting events | Daily or several times a week |
| Legal availability | Most US states that allow betting | A small number of states |
| Typical tax rate | Varies widely by state | Often higher than sports betting |
The catch is availability. Far fewer US states have legalized online casino gaming than online sports betting, and the states that allow it, such as New Jersey, Pennsylvania and Michigan, are among the most valuable markets for operators. Operators use sports betting to acquire customers and then cross-sell them into online casino games where both are legal, which is one reason the largest operators value scale across both products.
Online casinos rely on game suppliers for much of their content, licensing slot titles and live-dealer studios from the same companies that supply physical casinos, which gives those suppliers a growing digital revenue stream.
State-by-State Legalization and Taxes
US sports betting grew out of the Supreme Court's 2018 decision in Murphy v. National Collegiate Athletic Association, which struck down the federal law that had restricted sports betting to a few states and left each state free to legalize it. States have since legalized it one by one, each setting its own rules on how many operators may be licensed, whether betting can be done online and how heavily it is taxed.
Tax rates vary widely and can change quickly. Illinois added a per-wager tax from July 2025, charging sportsbooks 25 cents on each of their first 20 million bets in a fiscal year and 50 cents on each bet after that, on top of its existing tax on revenue. Sportsbooks responded by adding surcharges or raising minimum bets, and the Illinois Gaming Board reported 6.4 million fewer bets in October 2025 than a year earlier, according to Covers.
New products also bring regulatory questions. Prediction markets, which let users trade contracts on event outcomes under federal rather than state oversight, have expanded rapidly; DraftKings said its prediction-market product operated in 47 jurisdictions. Whether they complement or compete with state-licensed sportsbooks, and how regulators treat them, is one of the open questions in the industry.
Customer Acquisition and the Path to Profit
When a state launches online betting, operators spend heavily on advertising, sign-up bonuses and promotions to win customers before rivals do. Early years in a state are often loss-making, and profits arrive later as the customer base matures and spending falls as a share of revenue. The economics follow the same logic as any business that buys customers, set out for online brands in DTC and Amazon: how brands sell direct and online: the cost of acquiring a customer must be repaid by the profit that customer generates over their lifetime.
The path to profit rests on a few levers:
- Scale and share: the leading operators spread technology and marketing costs over more customers and can spend less per customer to keep them
- Promotional discipline: cutting bonus spending once customers are acquired, without losing them to rivals
- Product mix: higher-hold products such as parlays, and cross-selling into iGaming where legal
- Retention: keeping customers active through loyalty programs and personalized offers
- Technology ownership: running their own betting platforms and risk management rather than paying third parties
Market structure and consolidation
Market structure has helped the leaders. A few operators hold most of the market in the largest states, so smaller competitors struggle to match their marketing and product investment, and several have exited or scaled back. That concentration supports better margins for the leaders but also attracts regulatory and political attention. For smaller operators and media companies that entered the market with betting apps, the choice has often been to sell, partner with a larger operator or exit, which keeps consolidation a steady source of deals in the sector, alongside acquisitions of technology platforms, content studios and lottery-style products.
What Bankers Look For
When advising operators, suppliers or investors in online betting, bankers focus on the measures that separate durable profit from a lucky quarter:
- Handle, hold and net revenue margin, by state and by product
- Promotional reinvestment as a share of gross revenue, and how it is trending
- State mix and tax exposure, including pending tax changes
- Customer economics: acquisition cost, payback period and retention by cohort
- iGaming exposure, since online casino revenue is steadier and more profitable where legal
How investors value high-growth consumer businesses whose profits arrive after years of investment is covered in valuing high-growth and insurgent consumer brands. For a coverage banker, online betting is a regulated, marketing-led business: the operators that win are the ones that keep enough hold after promotions and taxes to pay back what they spent to win each customer.
