It was back in June that DraftKings CEO Jason Robins explained the reality of the legal sports betting business model to the world at large.
Speaking at a Goldman Sachs Travel and Leisure Conference, Robins stated that parlay wagering was the key to sportsbooks' profitability.
"What we’re not looking to do is take money from people by forcing them into bets they don’t want," Robins said in a statement that immediately went viral. "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."
Ever since FanDuel introduced the same-game parlay feature for NFL betting in 2019, it has paved the way for sportsbooks to cater to massive customer demand for parlays.
Other leading sportsbooks and sports betting sites 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.
"Sportsbooks make a 30 percent profit on parlays vs. five or six percent with straight bets," said Jeff Edelstein, a senior analyst at USBets, to Philadelphia Magazine last month. "People love parlay bets. Who doesn’t like putting down a little to win a lot?"
The science behind parlays
Deutsche Bank gaming industry analyst Carlo Santarelli commented recently that he expects hold percentage, as a function of parlay wagering, will be dependent on how effectively sportsbooks can entice their customers into taking a shot at big payouts on higher-risk parlays.
"We believe hold percentages, within the recreational sportsbook model, are largely, if not entirely, predicated on the mix of single event versus parlay/multi-outcome wagers," stated Santarelli. "In short, single event wager holds are in the 4-6% range, while parlay wagers are holding well into double digits and as such, hold percentage, excluding short duration luck, will essentially mirror the operators' effectiveness in pushing players into parlay wagers.
"We would also note that we do not believe in-play wagering has or is likely to have a notable impact on aggregate hold percentages. Lastly, as was evident in NJ, post the NY mobile launch, the use of certain promotions, most notably odds boosts, will impact reported hold percentages."
Parlays maximize sportsbooks' win rates
One need look no further than New Jersey, as Santarelli commented, for full proof that parlays equal revenue.
In the Garden State's September sports betting report, parlays carried a whopping 17.4% win rate in 2022... compared to just 4.4% for baseball bets, 3.3% for football, and 1.7% on basketball wagers.
According to a February 2022 study by UNLV’s Center for Gaming Research, sports betting operators in Nevada had a 30.97% win rate on parlays — compared to a 5.6% win rate on all other sports bets — since 1984.
These kinds of spectacular figures are what have led sportsbooks to ramp up their parlay offerings as the key to maximizing win rates, especially in the face of massive customer promotion and acquisition costs that will only see operators begin to enter overall profitability sometime in 2023.
FanDuel's numbers in Illinois also support the value of parlays. Illinois' most recent monthly figures (August 2022) showed that FanDuel reported an adjusted revenue of $18.6 million on $176.7 million in handle — a strong10.5% hold rate.
Parlay wagers accounted for $11.2 million of that revenue — more than half of the total winnings — and for the year as a whole, FanDuel's Illinois parlay hold rate of 21% is second only to that of PointsBet, which sits at a 21.4% win rate.
Odds boosts increase hold rates
Santarelli's comments on odds boosts point to a major new avenue in which sportsbooks can increase win rates: By offering targeted enticements and increasingly creative means of getting customers to increase their daily wagering.
These inducements can take the form of better pricing on a specific player prop, higher odds on a featured parlay, or a profit boost applicable to any bet.
While promoted parlays, often provide the illusion of an easy path to a high-paying wager, often the sportsbook is choosing the specific combination of wagers for a reason.
A recent Washington Post article made the following telling observation about sportsbooks: They are "selling a product — so don’t assume their enthusiasm around special offers necessarily means they hold any value for bettors."
DraftKings playing catch-up
During its Q2 earnings call in August, DraftKings CFO Jason Park could not have put matters in a more stark perspective when it came to the critical importance of parlay wagering and same-game parlay product offerings as an earnings driver.
As DraftKings only completed its in-house bet engine migration late in Q3 2021, it was unable to offer its customers same-game parlays, which has been a major profit center for major rival FanDuel.
"Bet mix is a big priority for us. We're probably right at parity [with respect to hold percentage] with the broad industry, excluding FanDuel," said Park in August. "FanDuel has a really high hold and we've run the diagnostics on why that is — and bet mix and parlay mix is really the silver bullet here."
