Potential Arizona Sports Betting Revenue

With a competitive, online-friendly regulatory framework and a strong sports presence, the future is bright for sports betting in Arizona.

As a matter of fact, PlayAZ estimates that at maturity, AZ sportsbooks will produce over $3 billion in annual handle and likely well over $10 million in annual tax revenue. A number of factors like the state’s population and gambling companies’ interest in the market combine to produce this optimistic appraisal. The market also stands to benefit from external factors as well.

To understand the financials of the sports betting industry, there are a few terms it helps to be familiar with:

  • Handle: Amount of money that bettors wager
  • Gross gaming revenue: Total money minus winnings paid out that is taxed by the state
  • Hold: Percentage found by dividing gross gaming revenue by handle
  • Tax revenue: Amount of money regulators collect from sportsbook operators

Regulators working on AZ sports betting rules

Before sportsbooks in Arizona begin accepting legal wagers, the Arizona Department of Gaming must draft rules and regulations for the industry.

Among the details to be hashed out are licensing and renewal fees as well as tax rates operators must pay to the state.

Those fees will obviously provide Arizona with immediate revenue. And obviously taxes paid, likely out of gross gaming revenue, is what the state will bank on moving forward.

Where the Arizona Department of Gaming stands on these details remains to be seen. Fortunately, regulators have already begun the process.

Overall, legislators in Arizona did a solid job of creating a guiding statute that sets up the sports betting industry in their state for success. PlayAZ analyst Eric Ramsey spoke about the strengths of Arizona’s sports betting law.

How big could Arizona sports betting become?

For starters, the Grand Canyon State set up a fairly inclusive sports betting market.

“One of the smartest things that Arizona did was to create a relatively open market, like Indiana, which will spur competition and raise the market’s ceiling,” Ramsey said. “We don’t know the entire framework yet in Arizona. But ultimately a truly competitive market benefits consumers while making the industry a reliable revenue producer for the state for years to come.”

Because of the open nature of the market so far, Ramsey and other analysts expect a competitive tax rate. Regulators in Arizona have not yet finalized that, but assuming a rate of 8%, the state could see revenue from sports betting taxes reach eight figures annually at maturity.

Another factor that Ramsey and other analysts used as a baseline is a hold percentage for AZ sportsbooks. Assuming a 7% hold, the estimates are $3.3 billion in annual handle and up to $225 million in gross gaming revenue per year at maturity.

The conclusions were created using the sports betting market performance of Indiana, which most similarly resembles Arizona among jurisdictions with regulated wagering. Analysts then adjusted for Arizona’s population of 7.3 million, which is about a half-million more than Indiana.

Arizona also has a greater sports presence, with teams in each of the big four professional sports leagues in North America. In 2020, Indiana sportsbooks produced $1.8 billion in handle and $138.4 million in gross revenue. Consider, though, that the three-month shutdown of major sports due to COVID-19 diminished that number.

Through the first three months of 2021, Indiana sportsbooks took in nearly $1 billion in bets with almost $73 million in gross revenue. Given Arizona’s greater population and sports density, topping $3 billion in handle annually is no stretch. The state does not have to depend on its own population to get there alone, either.

AZ sports betting benefits from geographic position

Because of its climate, Arizona regularly draws tourists throughout the year.

Many people travel to the state specifically for sporting events, such as MLB Spring Training. The sportsbooks will be in a good position to take advantage of the out-of-state interest. In fact, sports betting might act as a draw of its own.

While online sports betting is legal and live in Colorado, it’s the only neighboring state with such an open market. In Nevada, bettors who wish to wager online must register accounts in person. In New Mexico, only retail wagering is legal at a handful of tribal casinos. All sports betting remains illegal in California and Utah.

Like out-of-state gamblers, all these factors should combine to make Arizona attractive for new gambling companies. That, in turn, will only increase the value of the state’s sports betting industry. Each new license means more upfront and renewal fees for the state.

“There is no question that Arizona will be a fruitful market, but there are still a lot of moving parts that will need to be sorted before launch,” said Dustin Gouker, lead analyst at PlayUSA.com. “Based on what is known now, though, the basic framework will be appealing for sportsbook operators.”