Getting the Handle: How State-by-State Sports Betting Legalization Affects the Competitive Dynamics of Franchise Financials in American Professional Sports

Abstract

Since its federal legalization in 2018, sports betting has become an increasingly important segment of American entertainment spending. While the effects of this change on the sportsbook industry and government revenues have been extensively studied, there has been limited exploration of its impact on the sports industry itself. This paper addresses this knowledge gap by looking at operating incomes, salary expenditures, and pre-salary operating incomes of teams in the four major American professional sports leagues. Specifically, I utilize franchise financial data from Forbes and Spotrac to perform a linear regression of franchise financials on sports betting handles and team characteristics. Additionally, I employ a staggered difference-in-differences regression to analyze the impact of state-by-state legalization on franchise financials. My findings indicate that federal sports betting legalization has increased the operating income of American professional sports franchises. However, I also observe a brief decrease in pre-salary operating income following in-state legalization, though franchise health returns to normal after the first few years. Furthermore, I find that the operating incomes and pre-salary operating incomes of the largest quartile of franchises in each league have been negatively affected by in-state sports betting legalization. This suggests that revenues from legalization may be distributed primarily through shared revenue channels, such as television deals and sportsbook partnerships. Overall, this study provides evidence that sports betting legalization is reshaping the competitive dynamics of franchise financials in the sports ecosystem. This development is of heightened importance given the increase in private investments in sports franchises as well as the emergence of new betting markets.