Do you like parlay bets? If so, the sportsbooks likely love you.
Parlay wagering is by far the most profitable component of legal sports betting and continues to drive revenue for sportsbooks and states alike.
The latest round of parlay-related revenue for retail and online sportsbooks is being generated as the schedule of major sporting events undergoes its usual summer slowdown. With no college or NFL football on the calendar yet, parlays on baseball and other summer sports are helping to fill the void for bookmakers.
In Indiana, for instance, parlays are the second-most popular sport by handle so far this year, behind only basketball, which is saying something in the hoops-crazed Hoosier State. And in New Jersey, parlays made up nearly $1.2 billion of the approximately $5.8 billion in total sportsbook handle for completed events from January to the end of June, or more than 20%.
Parlays are also highly lucrative for states where sports betting has been legalized. The year-to-date win rate for parlays in New Jersey was 16% as of the end of June, well above the 5.3% hold across all sporting events. Parlays are responsible for more than 60% of the $308.9 million won by sportsbooks in the Garden State this year as well.
Bettors will likely get nudged even more towards parlays in the future. BetMGM's chief product officer, Jarrod Schwarz, said during an investor day in May that the bookmaker's parlay handle had increased more than 140% year-over-year, and that bet count was up by more than 160%.
But BetMGM is looking for even further growth. Key to this, Schwarz said, is the so-called "One Game Parlay," which allows a bettor to combine selections from the same game. Handle for the solo-match parlays was up 400% year-over-year, Schwarz said.
"This year, as part of our redesign effort, we will deliver an even better One Game Parlay experience," Schwarz said, according to a transcript. "We expect this investment to pay dividends and increase both customer adoption and margin for our sportsbook business."
Back to basics
For those wondering what a parlay is, it's a wager that ties two or more bets together with one single stake for an increased payout. The more bets added to the parlay, the larger the potential profit, but all the selections (called legs) included in the parlay must be correct for the overall parlay to win. If three of the four bets included in the parlay win but one loses, the entire parlay bet is graded a loss.
FanDuel has helped blaze a trail for parlays — including single game/same game parlays (SGPs) — that draw in bettors eager for big payouts, despite odds that are stacked in the operators' favor. The concept has been a boon for sportsbooks overall, but SGPs have been especially big for NFL betting, in which Morgan Stanley reported in May that more than 50% of NFL bettors placed an SGP during the 2020-21 NFL season.
FanDuel introduced the same-game parlay feature for NFL betting in 2019 and it has been riding the wave of heavy customer demand for parlays ever since. Other leading sportsbooks have copied the concept, to the point where most industry analysts believe that parlays will continue to gain in popularity amongst bettors and become a major profit center for operators.
According to a February 2022 study by UNLV’s Center for Gaming Research, Nevada betting operators had a 30.97% win rate on parlays all-time — compared to a 5.6% win rate on all other sports bets since 1984.
A more recent example of just how much parlays are boosting the operators' bottom line is FanDuel's parlay-related revenue in Illinois for May 2022. The monthly figures released by the Illinois Gaming Board revealed that FanDuel accepted a whopping $70.2 million in parlay bets (43.5% of the state's total parlay handle that month), with its $20.8 million revenue pacing all operators — and a 29.7% hold rate on parlays well above the state average of 20.6% for the month.
With a hold rate of just 5.44% in May on all other wagers, FanDuel's parlay strategy certainly helps bolster revenues in a year where the bottom line for sportsbooks continues to be affected by an early year focus on advertising and customer acquisition.
The early implementation (and continued expansion) of parlays has also helped FanDuel continue to dominate the market through the first quarter of 2022, where FanDuel reported revenues of $574 million — a nearly 38% edge over its closest competitor, DraftKings, which reported Q1 revenue of $417 million.
Going back to Illinois alone, FanDuel’s $123 million in revenues through the first five months of 2022 is almost double that of DraftKings, which is No. 2 at about $67.8 million — a revenue gap driven wider by FanDuel's popular parlay offerings.
Sportsbooks aim to raise parlay mix
None of this is lost on DraftKings CEO Jason Robins, who is well aware of the need to generate additional revenue growth for his book in a market environment where profits — rather than market share — drive investor sentiment.
Robins believes that one of the keys to improving profitability and driving earnings growth is to boost win rates by increasing the mix of parlay bets while also reducing sharp action.
"In an earlier stage environment, it is not the worst thing in the world to give people a couple of extra winning experiences, rather than trying to maximize how much margin we’re taking," Robins explained as he delivered this strategic imperative in comments made at a Goldman Sachs investor conference on June 6, which went viral afterward.
“What we’re not looking to do is take money from people by forcing them into bets they don’t want,” Robins said. “What we are trying to do is get smart at limiting the sharp action, and then also making sure that we have a high parlay mix because people like that. Every quarter, the parlay as a percentage of the total bet mix goes up."
