Leagues Want A Cut Of The Sports Betting Handle, Not The House Take
With all the reporting to date about the impending Supreme Court decision on the constitutionality of the Professional and Amateur Sports Protection Act (PASPA, 1992), there has been a constant - and troubling - theme at the forefront: The Leagues want a cut of the sports betting handle, not the house take. This is a critical distinction, and the request is baffling. In fact, it is economically infeasible and quite likely to be counterproductive if granted. (And, of course, all this assumes that PASPA will be overturned, which isn’t a sure thing but seems fairly likely.)
To understand why the request for a cut of the handle is so problematic, consider that “handle” and “house take” are two dramatically different things. Logically, the leagues shouldn’t get any profits derived from sports betting (beyond licensing out their trademarked team logos and other longstanding commercial considerations), but let’s set that argument aside and discuss instead why the leagues are looking at this from an untenable angle. First, a little background on what the two terms above actually entail.
What Is The Betting Handle?
For those unfamiliar with sports betting, the betting handle is easy enough to explain: It is the total amount of money that is wagered at any given sportsbook or casino. On aggregate, combining all sportsbook businesses and offshore betting shops and the like, Americans spend an estimated $200-400 billion each year wagering on sports. That’s a heck of a lot of cash, but there’s a catch. See, this money doesn’t actually represent anything in the way of operator profit, because nearly all of it is paid back out to the bettors.
What Is The House Take?
The house take is what is left over from the handle after all the winning wagers are paid out. This is the gross revenue that a sportsbook makes, with net profits being left over from covered expenses (licenses, salaries, facilities, etc.). For example, if you make a wager on a game and you win, the sportsbook has a limited amount of money it is able to keep on that bet before issuing your payout. This is established in the moneyline, which shows how much you stand to earn on a given financial risk. This number is usually shown in parentheses next to a bet on the betting boards, and sportsbooks will adjust this number in real-time as they try to secure a small profit on such wagers.
Handle vs. House Take
To understand the handle vs. the house take, consider the following scenario. Let’s say that New England is playing Pittsburgh in a regular-season NFL game. The Patriots are favored by 3 points and have a -110 moneyline, while the Steelers are 3-point underdogs, also with a -110 moneyline. Regardless of the winner, on a spread bet like this, the moneyline means that you must risk $110 to make $100. That extra $10 (or 9%) of your wager is kept by the sportsbook as “vigorish,” or the “house take.” With spread bets, a sportsbook’s job is to get as many people wagering as possible to maximize their take.
However, there’s a catch here too: There are other kinds of popular bets that don’t have this built-in revenue stream. Take straight bets, which are perhaps the most common bet types offered at any sportsbook. With straight bets, bookmakers do not have the luxury of an inbuilt buffer. A straight bet, using the above examples of Pats vs. Steelers, might look like this:
- New England Patriots (-160) vs. Pittsburgh Steelers (+140)
Here, a $160 bet on the Patriots to win straight up (i.e. with no spread or handicap) pays out $100, while a $100 bet on the Steelers pays out $140. The balance here is historically difficult for sportsbooks to get right, and the profit margin on such wagers can be extremely small if those books are even a little bit off of their game. Remember, this is a risk for them, too, and it’s not uncommon for sportsbooks to actually lose money on such bets, as upsets in sports happen frequently and (by their nature) unpredictably.
Because sportsbooks offer both handicapped and straight bets, their total gross revenue – regardless of the betting handle they take in – is around 4-6%. A book producing such numbers is considered successful. Remember, one bad line or one huge upset, and a sportsbook can drop into the red for the entire year. That’s all it takes, and it happens more than you might think.
Leagues Are Going After The Handle
The above should give you some idea of why it’s such a problem that, foreseeing PASPA’s overturn, leagues are going after the handle and not the take. Because the handle represents all wagers made (but no wagers paid out), the leagues are actually proposing a market-crippling scenario where sportsbooks have to fundamentally restructure their odds calculations to account for the leagues’ cut.
It’s also worth noting that each league is reportedly asking for about 1% of this handle, though this hasn’t been explicitly discussed. If this is the case, however, between four major sports leagues (NFL, MLB, NBA, NHL) and the NCAA, there would be no money left for the bookmaker at all. Even if all the major sports leagues are given a combined 1% of the handle to split amongst themselves (imagine the infighting there!), that would be a whopping 20% of the average sportsbook’s gross revenue.
No business can just eat such a wholesale loss and continue operating as normal, and sportsbooks are no different. The cost of such an expensive scheme will either put books out of business (and/or keep competing books and casinos from offering a compelling product), or it will make the books increase their prices entirely, in the forms of less favorable odds across the board (and perhaps even a membership fee structure). If that happens, people will simply do what they’ve done this entire time and continue to bet at legal online sportsbooks in sports betting states.