The nation’s sportsbooks are happy October is behind them as a plethora of NFL favorites covering the point spread took a toll on revenue.

In a note to investors, Deutsche Bank analyst Carlo Santarelli said their subset of sportsbook gaming revenue fell 9% year-over-year as handle comparisons stiffened and hold declined. Handle was up “a modest” 8.8% year-over-year, akin to the 8.6% growth in September, but “a material deceleration” from the greater-than-20% growth from January through August.

“With the tough October in the rear view, reasons for optimism exist as November’s hold has been favorable to date. While the comparison is easy, given operators experienced a tough November in 2023 (6.2% focal-state hold), we see upside to guidance, stemming from the timing of the third-quarter reporting season relative to the change in game-outcome fortunes.”

The “much-discussed” October hold was 7.1% and down 140 basis points Y/Y (7.1% versus 8.5%), Santarelli said. Of the eight states Deutsche Bank tracks in this subset, seven experienced year-over-year gaming revenue contraction, while New York’s grew 6%. New Jersey was the only state that experienced handle contraction in the period, down 12% year-over-year, he noted.

Based on the six states tracked by Deutsche Bank that provide detailed promotional color, five of which have reported October results, promotions are up 10.3% year-over-year in October, while gaming revenue fell 21.3%.

“As such, promotions are representing 52.6% of gaming revenue, up about 1,500 basis points year-over-year,” Santarelli said. “Given handle is up 7.9% across this subset, promotions as a percentage of handle are up 10 basis points (3.4% in October, 2024 versus 3.3% in October 2023).”

Looking at their subset over the third quarter, promotions grew 42.3% Y/Y, while gaming revenue was up 35.2%. Promotions represented 37.5% of gaming revenue, up about 190 basis points. Handle in the third quarter was up 21.2%, meaning promotions as a percentage of handle came in at 4% for the period, up about 60 basis points from the third quarter of 2023 level (3.4%).

“As it relates to the outlook for handle across our focal state subset, comparisons remain challenging,” Santarelli said. “October handle for our focal states, as noted, was up 8.8% year-over-year against a 17.9% (increase) comparison from October of 2023. Comparisons stiffen a bit in November with November 2023 handle growth of 30.5%. Given the weak operator hold in October, it is possible that customer account funding helps drive better handle comparisons in November relative to October, despite the tougher year-over-year comparisons.”

While it’s difficult to decipher a correlation, Santarelli said the low online-sports-betting holds in Pennsylvania, Michigan, and New Jersey seem to have “somewhat helped on the icasino side, as growth accelerated in each state in October, relative to September.” Icasino gaming revenue was up 30.3% year-over-year in October, relative to the 20.7% same-store growth in September, with West Virginia (+55.9% year-over-year), Michigan (+37.7%), and Connecticut (+31.7%) leading the group.

Deutsche Bank’s total market forecast does’t include further sports betting-enabling legislation through 2027, “a conservative approach, though our forecast has been updated for the recent Missouri legalization,” Santarelli said. “Our model uses precedent launch performance to project gaming revenue for recently launched states, while our projections for states that were live throughout 2022 and 2023 effectively embed a 10.4% same-store compounded annual growth rate for the period covering 2024 through 2027.”

While Santarelli believes the embedded same-store 10.4% annual growth rate is reasonable, it’s important to note the impact of promotions on gaming revenue and to the extent operators extract promotions; the extractions would have a negative effect on gross revenue growth rates.

Given the assumed compounded annual growth rate for the states that operated for the entirety of 2022 and 2023, the new states that came online in 2023 and 2024, and the expected Missouri launch in 2025, Deutsche Bank’s 2027 U.S. sports-betting forecast is $17.8 billion, up from its prior forecast of $16.5 billion.

Hold percentages within the recreational sportsbook model are largely, if not entirely, predicated on the mix of single-event versus parlay and multi-outcome wagers, Santarelli said. In short, single-event wager holds are in the 4% to 6% range, while parlay wagers are holding in the high teens. As such, hold percentage, excluding short-duration luck, “will essentially mirror the operators’ effectiveness in moving players into parlay wagers, with more legs within the parlays further adding to the hold percentage,” Santarelli said.

Deutsche Bank has assembled data across 26 states that currently provide both handle and revenue data. The life-to-date hold percentage in the 26 has been 8.5%, with the hold percentage over the last 12 months coming in at 9.2% through October.

In the third quarter, hold was 10.4%, up about 80 basis points year-over-year. In the fourth quarter to date, though several states have yet to report October, a hold of 7.2% is running down about 130 basis points relative to the fourth-quarter-2023 hold comparison of 8.5%, Santarelli said. Favorable November hold, coupled with an easy November comparison (6.4% in November 2023), should alleviate the fourth quarter headwinds to date.

Parlay hold in the aggregate was 17.8% in 2023, down 30 basis points year-over-year, after expanding in the first half of 2023, only to decline in the back half of the year despite marketing efforts around operator-created parlays and larger lottery tickets to boost structural hold. In 2023, parlays accounted for 25% of handle, up 330 basis points year-over-year.

Thus far in 2024, parlays make up roughly 26.7% of total handle, while parlay hold is up to 18.5%, 70 basis points better than the 2023 parlay-hold result, Santarelli said.

Much like in brick-and-mortar casinos, net revenue in sports betting is lower than gross gaming revenue, as operators use promotions to drive traffic. Additionally, accounting for promotions often leads to some false conclusions when looking at the data being presented by the states.

“Given some states provide promotional data, one can get a sense for the impact of promotions on gaming revenue at present,” Santarelli said. “Since promotional play is recorded in gross revenue, it is fair to say that if these customer incentives were to go away – and while they will never be close to being entirely extracted – both handle and gross-revenue metrics would likely decline. The impact on net revenue would perhaps be slightly less onerous than the full amount of promotions would suggest.”

When looking at Pennsylvania, Michigan, Colorado, Arizona, Connecticut, and Kansas, third-quarter promotions from were up 42.3% year-over-year. Given gaming-revenue growth of 35.2% in the third quarter, promotions as a percentage of gaming revenue were 37.5%, up from 35.6% in the comparable 2023 period, Santarelli said. Similarly, third-quarter-2024 handle for this comparison set was up 21.2% year-over-year with promotions as a percentage of handle coming in at 4%, up 60 basis points when compared to the third quarter of 2023.

Using a subset of 13 states that have been up and running at some capacity for at least a year, Deutsche Bank has assessed adult spending over the last 12 months of 75.9 million adults representing about 32% of the U.S. adult population.