The proliferation of legal sports betting across the United States is already paying dividends. According to the American Gaming Association, $7.9 billion was wagered at legal US sportsbooks, in the one year since the Supreme Court struck down PASPA.

That said, that number pales in comparison to the estimated $150 billion in wagers the AGA estimates occurs annually on the black market.

That has many wondering how the deep-rooted illegal market will impact the new, legal market and vice versa.

To help get a handle (no pun intended) on the interplay between legal and illegal sports betting markets, Play USA enlisted the help of David Henwood, the director of H2 Gambling Capital.

Henwood spoke to Play USA following a presentation at ICE North America held mid-May in Boston, Massachusetts.

JUST HOW BIG IS THE BETTING BLACK MARKET?
During his ICE presentation, Henwood noted repeatedly that he believes H2’s US estimates are on the conservative side. So, it was a bit surprising to hear him say the AGA’s black market estimates are likely too low.

“The one number we raised our eyebrows at pre-SCOTUS was the $150 billion handle illegal market size being quoted by the AGA,” Henwood said. “So we spent six months deep-diving it in 2017. In the end, our research found it even higher at $196.2 billion in handle and $10.4 billion in gross win.”

That leads to the obvious question: How much has legal betting cut into that amount?

Well, the answer might surprise you.

OFFSHORE SPORTSBOOKS AREN’T JUST SURVIVING–THEY’RE THRIVING
Henwood estimated the newly legal sports betting states have converted only 4% of illegal bettors into legal bettors.

“Very few other markets have started with such a large or entrenched illegal market,” said Henwood. “And, in the last 12 months, regulated US sports betting has only eaten into 4% of that offshore value.”

And that 4% also comes with an important caveat.

According to H2’s analysis, even with the 4% loss to legal markets, the illegal market has increased in size since the Supreme Court decision in May 2018.

If that seems counterintuitive, it is. The black market isn’t supposed to grow parallel to legal markets opening.

Henwood chalks it up to another unique-to-the-US factor: The increased exposure and publicity surrounding the SCOTUS case and the legalization of sports betting in multiple states.

According to Henwood, the increased exposure led to H2 bumping up its 2018 black market gross win estimates from $10.4 billion to $11.2 billion.

HOW MUCH CAN LEGAL ONLINE GAMBLING CAPTURE?
That strange dynamic will change as markets mature and more states come online. That should help customers become better educated and better at differentiating licensed US sportsbooks from offshore sportsbooks.

Henwood expects the legal market will eventually surpass the illegal market. Although, he feels it will take a decade for the legal market to catch up to the illegal market due to a number of built-in advantages black market operators possess.

The lack of federal oversight that hinders law enforcement crackdowns.
A lack of player education, exacerbated by black market sites doing an excellent job of play-acting as legal, licensed sportsbooks.
The widespread availability of credit betting at offshore sites.
Illegal operators are benefitting from reduced tax and licensing liabilities and offering bettors superior odds and bonuses.
HOW BIG WILL THE LEGAL US SPORTS BETTING MARKET GET?
“The market has doubled in the last 12 months since SCOTUS, but it’s still too early to assess,” Henwood said, noting that we haven’t even experienced a full season of Major League Baseball yet. Baseball is a US-centric sport that doesn’t receive a lot of attention in European markets.

“In terms of growth, just by adopting a core US sports focus we have the market increasing 10-fold over the next five years,” Henwood said, adding that H2’s estimates have a 32-state market generating $8.42 billion in gross win by 2030.

“That’s strong,” Henwood pointed out. “But it’s still only a third of a total addressable market if all 50 states regulated.”

Henwood also identified other potential hiccups that could erode their estimates:

High tax rates that restrict market size.
The slow adoption of mobile wagering.
A restriction on supply due to a monopoly-style model, brick-and-mortar-led access or limited product offering.
WILL THE US BE TOO FOCUSED ON THE BIG FOUR?
A point of interest raised by Henwood was the current reliance on major sports. Henwood believes that could be an example of going after the low hanging fruit.

According to Henwood:

“At present, it’s a market largely dominated by two sports (NFL and college basketball) and two states (Nevada and New Jersey), which maybe throws up an early question mark as to the potential limitations of a focus solely on the major league American sports?

“Operators will want to progressively broaden the offer (especially as mobile rolls out) and introduce other US interest, more global sports that offer regular 365, 24/7 content such as tennis, golf, soccer, e-sports, but that requires player education, too.”
SPORTS BETTING AND ONLINE GAMBLING ARE LIKE PEANUT BUTTER AND JELLY
Henwood is also bullish on the mixture of sports betting and online gambling, likening them to peanut butter and jelly. Rather than being substitutes, the experience thus far is peaceful coexistence, with the two complementing one another.

“The early evidence is in the Garden State where there’s been a parallel 38% increase in iGaming revenue since NJ sports betting launched, from $24.8 million in August 2018 to $39.2 million in March 2019,” Henwood noted.

“No two markets are the same, but we know from a number of countries around the world where a regulated sports betting offer has launched alongside an existing iGaming one that there will be crossover. With both markets converting of each other and growing in tandem.”

This article is a reprint from PlayUSA.com.   To view the original story and comment, click here.