---
title: "How casinos actually make money"
url: https://modern-mba.com/case/online-gambling
sector: "Finance"
sector_url: https://modern-mba.com/sector/finance
aired: 2024-02-28
published: 2026-08-26
updated: 2026-08-28
reading_time_minutes: 14
charts: 14
video: https://www.youtube.com/watch?v=sZ-NU1vK0wM
author: "Yishan Lin"
author_url: https://www.linkedin.com/in/yishanlin/
publisher: Modern MBA
license: "© Modern MBA, all rights reserved. Quote and cite with credit and a link; republishing needs written permission."
---

# How casinos actually make money

DraftKings and FanDuel were supposed to be the software version of a casino — no buildings, no dealers, no free prime rib, and therefore better margins. Twelve years and billions of venture dollars later they are still losing money, while the Wynn and MGM run 40%+ on their gambling floors. This case study sets the two side by side and shows why the old-school casinos hold every card that matters: the licenses, the politicians, and a house edge that does not need advertising.

## Key figures

- **50% vs 10%** — New York's tax on online sportsbooks against retail ones
- **$28** — Average annual revenue per DraftKings user before the pivot
- **43%** — Operating margin on the Wynn's core casino business

## The argument

A casino is one of the best businesses ever devised, and it is not because of the buildings. Every game is built to lose the player money — blackjack carries a 1–2% house edge, roulette 5%, slots up to 20%, keno 40% — so the only variable is how long someone stays. The hotel, the restaurants, the shows, and the free drinks are not a second business; they are the mechanism that keeps people at the table. The Wynn gives away $200–400 million of food, rooms, and drink a year, which is about 9% of what it takes off gamblers.

So online gambling looked like the obvious arbitrage. No janitors, no dealers, no cashiers, no lobster, infinite tables, fifty states from one storefront. DraftKings and FanDuel raised hundreds of millions on exactly that pitch and got to billion-dollar valuations inside five years by operating in a legal gray area where fantasy sports was neither sports betting nor commercial gambling.

It has not worked, and the reason is that the constraint was never technology. Gambling is a licensing business run by fifty separate states, and the states like buildings. Casinos bring jobs, tourism, and construction; an app brings none of those, so New York taxes online sportsbooks 50% against 10% for retail. In several states DraftKings cannot get a license at all without renting one from a local casino and handing over a cut. It has lost money in every year of its existence — and the house it was supposed to disrupt still takes 43% off its own floor.

## Charts

### The most lucrative vice there is

EBITDA margin, 2019. Gambling out-earns luxury goods, cruise lines, hotels, and restaurants without needing a brand.

|  | Percentages |
| --- | --- |
| Casinos (top operator) | 41% |
| Casino average | 25% |
| Luxury goods | 25% |
| Cruise lines | 21% |
| Hotels | 19% |
| Sportswear | 15% |
| Restaurants | 11% |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-1 · Sources: https://modern-mba.com/case/online-gambling#sources

### The house edge, by game

Approximate odds of the casino winning over the player. A player can win a hand; nobody wins a thousand of them.

|  | Percentages |
| --- | --- |
| Keno | 40% |
| Slots | 15% |
| Video poker | 5% |
| Baccarat | 5% |
| Roulette | 5% |
| Craps | 2% |
| Blackjack | 2% |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-2 · Sources: https://modern-mba.com/case/online-gambling#sources

### States ration the supply

Tax on gross casino earnings by state — on revenue, not profit. Restricted licenses are what let states charge this much.

|  | Percentages |
| --- | --- |
| Rhode Island | 74% |
| Delaware | 57% |
| Maryland | 61% |
| New York | 45% |
| Illinois | 50% |
| Florida | 35% |
| South Dakota | 9% |
| Nevada | 7% |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-3 · Sources: https://modern-mba.com/case/online-gambling#sources

### The reservation loophole

Land-based tribal against commercial casinos in the U.S. Reservations sit outside state jurisdiction, so the rationing does not apply.

|  | Tribal | Commercial |
| --- | --- | --- |
| 2005 | 406 | 455 |
| 2010 | 422 | 438 |
| 2016 | 486 | 460 |
| 2022 | 523 | 468 |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-4 · Sources: https://modern-mba.com/case/online-gambling#sources

### The free food is a rounding error

Wynn complimentary food, rooms, and drink given to gamblers, in millions, against gambling revenue. Roughly 9% of what the floor takes.

|  | Gambling revenue | Complimentary spend |
| --- | --- | --- |
| 2008 | $2,031M | −$230M |
| 2010 | $2,941M | −$303M |
| 2012 | $3,668M | −$355M |
| 2014 | $3,885M | −$389M |
| 2016 | $2,898M | −$370M |
| 2017 | $4,948M | −$461M |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-5 · Sources: https://modern-mba.com/case/online-gambling#sources

### Everything else is the funnel

Wynn gross earnings by stream, in millions. Gambling grosses two to three times everything non-gambling combined.

|  | Gambling | Hotel, dining, shows |
| --- | --- | --- |
| 2006 | $798M | $209M |
| 2010 | $2,941M | $1,242M |
| 2014 | $3,885M | $1,568M |
| 2018 | $4,784M | $1,932M |
| 2020 | $858M | $602M |
| 2022 | $2,124M | $1,632M |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-6 · Sources: https://modern-mba.com/case/online-gambling#sources

### The floor holds through anything

Core casino operating margin by operator. The house edge is immune to labor costs, commodity prices, and pandemics.

|  | 2019 | 2022 |
| --- | --- | --- |
| Caesars | 49% | 52% |
| MGM Resorts | 47% | 50% |
| Wynn | 44% | 43% |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-7 · Sources: https://modern-mba.com/case/online-gambling#sources

### A fairytale, briefly

Capital raised from seed to exit, in millions. Two companies reached billion-dollar valuations on an activity that was legal by omission.

|  | FanDuel | DraftKings |
| --- | --- | --- |
| 2013 | $11M | $34M |
| 2014 | $70M | $41M |
| 2015 | $275M | $300M |
| 2016 | $80M | $224M |
| 2017 | $0M | $119M |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-8 · Sources: https://modern-mba.com/case/online-gambling#sources

### Fantasy sports never worked

DraftKings gross revenue against operating loss, in millions. The pots were too small and most of the entry fee goes back to the winners.

|  | Gross revenue | Operating loss |
| --- | --- | --- |
| 2013 | $4M | −$12M |
| 2014 | $30M | −$75M |
| 2015 | $89M | −$509M |
| 2016 | $160M | −$92M |
| 2017 | $191M | −$73M |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-9 · Sources: https://modern-mba.com/case/online-gambling#sources

### Growth bought, not earned

DraftKings gross revenue against sales and marketing, in millions. Between 50% and 80% of every dollar goes back out to buy the next one.

|  | Gross revenue | Sales & marketing |
| --- | --- | --- |
| 2017 | $192M | −$156M |
| 2018 | $226M | −$145M |
| 2019 | $323M | −$185M |
| 2020 | $615M | −$495M |
| 2021 | $1,296M | −$982M |
| 2022 | $2,240M | −$1,168M |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-10 · Sources: https://modern-mba.com/case/online-gambling#sources

### The casino games changed the numbers

DraftKings average annual revenue per user. Games of chance run all year, unlike seasonal games of skill.

|  | US dollars |
| --- | --- |
| 2017 | $28 |
| 2018 | $31 |
| 2019 | $39 |
| 2020 | $51 |
| 2021 | $67 |
| 2022 | $96 |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-11 · Sources: https://modern-mba.com/case/online-gambling#sources

### An app is worth less to a state

Tax on gross sports betting revenue, retail against online. A casino brings jobs and tourism; a download brings neither.

|  | Retail sportsbook | Online sportsbook |
| --- | --- | --- |
| New York | 10% | 50% |
| Arizona | 8% | 10% |
| New Jersey | 9% | 13% |
| Massachusetts | 15% | 20% |
| Louisiana | 10% | 15% |
| Rhode Island | 51% | 51% |
| Virginia | 15% | 15% |
| Connecticut | 14% | 14% |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-12 · Sources: https://modern-mba.com/case/online-gambling#sources

### Players lose less online

Hold rate online against in a physical casino. A lower hold means the operator needs far more volume for the same money.

|  | Online | Brick-and-mortar |
| --- | --- | --- |
| Blackjack | 7% | 23% |
| Roulette | 10% | 21% |
| Slots | 22% | 22% |
| Mobile games | 3% | 0% |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-13 · Sources: https://modern-mba.com/case/online-gambling#sources

### The incumbents are losing money too

Operating losses of the casino-run online sportsbooks, in millions. Funded by a floor already clearing 43–52%, which is the point.

|  | US dollars |
| --- | --- |
| Caesars Palace 2022 | −$790M |
| Caesars Palace 2021 | −$580M |
| BetMGM 2022 | −$440M |
| WynnBET 2021 | −$267M |
| BetMGM 2021 | −$211M |
| WynnBET 2022 | −$98M |
| Caesars Palace 2023 | −$91M |
| BetMGM 2023 | −$67M |
| BetMGM 2020 | −$61M |
| WynnBET 2020 | −$7M |

Source: Modern MBA, “How casinos actually make money”, aired February 2024. Chart: https://modern-mba.com/case/online-gambling#chart-14 · Sources: https://modern-mba.com/case/online-gambling#sources


## Takeaways

1. Start with why anyone wants this business. Casino **EBITDA margins** run around **41%** at the top against **25%** for luxury goods, **21%** for cruise lines, **19%** for hotels, and **11%** for restaurants. Gambling out-earns almost every consumer industry there is, and it does it with a mathematical guarantee rather than a brand.
2. That guarantee is the house edge, and it is enormous at the casual end. Blackjack gives the house **2%**, craps **2%**, baccarat **5%**, roulette **5%**, slots **15%**, and keno **40%**. A player can win a hand; a player cannot win a thousand hands. Everything else in the building exists to increase the number of hands.
3. Which is why the free food is not generosity. The **Wynn** hands out **$200–400 million** a year in complimentary rooms, meals, and drinks to its gamblers — a number that looks enormous until you set it against gambling revenue, where it works out to roughly **9%**. As long as the lobster keeps someone at the table, the math holds.
4. The whole resort is a funnel. Casino revenue has been the majority of the **Wynn's** gross earnings for **17** consecutive years, and on a dollar basis it grosses **two to three times** as much from gambling as from every non-gambling business combined. The hotel is only in demand because of the casino, and its capacity is fixed.
5. The reason this is not a crowded market is that states ration it. Commercial casinos are still banned in over half the U.S., sports betting is illegal in **21** states, and real-money online casinos are illegal in more than **35**. Supply is throttled deliberately, which is what lets states tax it so hard.
6. And they tax it hard. **Rhode Island** takes up to **74%** of gross slot revenue and **Delaware** **57%**, against **9%** in **South Dakota** and under **7%** in **Nevada** — on gross earnings, not profit. For every **$100** lost on a Delaware slot machine, the state keeps **$57**.
7. There is one structural loophole, and it is the largest single fact about American gambling. Indian reservations are self-governing and outside state jurisdiction, so a state that has banned casinos cannot stop one opening on tribal land inside its borders. There are now more tribal casinos than commercial ones — **523** against **468**.
8. Against that backdrop, **FanDuel** and **DraftKings** looked like a clean arbitrage. No dealers, no janitors, no cashiers, no free prime rib; infinite virtual tables against a hard cap on physical ones; and one storefront serving every state where the game is legal. On paper the margins should be better than the Wynn's.
9. They raised accordingly — **$11 million**, **$70 million**, **$275 million**, and **$80 million** at **FanDuel** against **$34 million**, **$41 million**, **$300 million**, **$224 million**, and **$119 million** at **DraftKings** — and reached billion-dollar valuations in five years on an activity that was legal by omission rather than by permission.
10. The fantasy business underneath was never viable. In 2017 **DraftKings** grossed **$191 million** and lost **$73 million**; **FanDuel** did **$124 million** and lost **$44 million**. The pots were too small, most of the entry fee goes back to the winners, and the average user generated **$28** a year. The 2015 loss alone was **$509 million**.
11. The 2018 Supreme Court repeal was the lifeline, and the pivot did work on the top line. Revenue went **$192 million**, **$226 million**, **$323 million**, **$615 million**, **$1,296 million**, and **$2,240 million** — but sales and marketing went **$156 million**, **$145 million**, **$185 million**, **$495 million**, **$982 million**, and **$1,168 million** alongside it. Between **50% and 80%** of every dollar earned goes straight back out to buy the next one.
12. But volume was never the real constraint — licensing was. Sports betting remains illegal in **21** states, **42%** of the country, six years after the repeal, and some states permit it in person but not online. A platform business that cannot reach half its market cannot reach critical mass, so the only lever left is squeezing the states it already has.
13. And those states charge a premium precisely because an app is worth less to them. **New York** taxes online sportsbooks **50%** of gross revenue against **10%** for retail; **Arizona**, **Massachusetts**, and **New Jersey** all tax online above retail. A casino brings jobs, tourism, construction, and outside money; **DraftKings** brings a download.
14. In several states it cannot even hold its own license. To operate in **New Jersey**, **Iowa**, **Mississippi**, **Pennsylvania**, and **Colorado**, **DraftKings** has had to partner with a local brick-and-mortar casino, which hands over the license in exchange for a slice of every dollar taken statewide. The incumbent gets paid for existing.
15. Stack it up and the business is illegal in half the country, taxed at up to **50%** where it is legal, revenue-shared with a casino in several states, and priced against rivals it cannot undercut — while paying league and data licensing fees on top. There is very little left at the bottom.
16. Meanwhile the house it was meant to disrupt keeps clearing double digits. Core casino operating margins run **43%** at the **Wynn**, **50%** at **MGM Resorts**, and **52%** at **Caesars**, and they have stayed in that band through a pandemic. The edge does not care about labor costs or commodity prices.

## Common questions

### Why aren't DraftKings and FanDuel profitable?

Because the constraint is regulatory, not technological. Sports betting is still illegal in 21 states six years after the Supreme Court repeal, so a volume business cannot reach the volume it needs. Where it is legal, states tax online sportsbooks far harder than retail ones — New York charges 50% against 10% — and in several states DraftKings must rent a license from a local casino and share revenue. On top of that it spends between 50% and 80% of every dollar earned on advertising and bonuses to retain and expand its user base.

### How does a casino actually make money?

From the house edge, applied over enough hands. Blackjack gives the house 1–2%, roulette 5%, slots 15%, and keno 40%, so a player can win a hand but cannot win a thousand. Everything else in the resort — the rooms, restaurants, shows, and free drinks — exists to keep people on the property and therefore at the table. The Wynn gives away $200–400 million of complimentary food, rooms, and drink a year, which is roughly 9% of what it takes off gamblers, and it grosses two to three times as much from gambling as from all its non-gambling businesses combined.

### Why do states tax online sportsbooks more than physical casinos?

Because a casino gives a state things an app cannot. A resort brings construction, thousands of jobs, tourism, outside money, and a reason to visit the state; an online sportsbook brings a download. The Wynn spent over ten years and $250 million just to secure a Massachusetts license, promising tax revenue, jobs, and non-gambling attractions. DraftKings and FanDuel have none of that to offer, so they get the worse rate — most starkly in New York, at 50% of gross revenue against 10% for retail.

### Why are there more tribal casinos than commercial ones?

Because Indian reservations are self-governing and sit outside state jurisdiction. A state that has banned commercial gambling cannot stop a casino opening on tribal land inside its own borders, which makes reservations the one place where restricted supply does not apply. There are now 523 tribal casinos against 468 commercial ones in the United States.

### Are online casino games better business than sports betting?

For the operator, yes, which is why DraftKings pivoted again in 2019. Sports betting is seasonal and depends on skill and schedules; casino games are games of chance that run all year and are inherently more repetitive. The effect on DraftKings' numbers was immediate — average revenue per user went from $28 to $96 and monthly payers from 574,000 to 1.9 million. The catch is that online real-money casinos are illegal in over 35 states, far more restricted than sports betting.

### Do you lose less gambling online than in a casino?

Per hand, generally yes, and that is a problem for the operator rather than a gift to the player. Online blackjack holds about 7% against 23% in a physical casino, and online roulette 10% against 21%. Lower hold means the operator needs far more volume to make the same money — which is exactly the volume that state-by-state licensing prevents them from reaching. Playing more hands faster on a phone is how that gap gets closed.

### What do casinos disclose that DraftKings doesn't?

Almost everything that matters. Wynn, MGM, and Caesars publish slot versus table revenue, win rates by game and by property, and complimentary spend, down to the dollar. DraftKings and FanDuel blend all revenue into a single figure and disclose no deposit amounts, no average bet size, no rake on fantasy pots, and no casino win rates — arguing that separating them would not be useful. Instead they report in CAC, LTV, cohorts, churn, and payback periods, with the actual fundamentals at the end.

### What are the old casinos doing about online gambling?

Hedging rather than committing. BetMGM, WynnBET, Caesars Palace Online, and Golden Nugget are joint ventures with software partners that let the incumbents take a position without betting the company. They are losing money on them — between $7 million and $790 million a year — but those losses are funded by a casino floor already running 43–52% operating margins. DraftKings and FanDuel are betting that the market changes; the casinos are betting that their brand and their licenses carry over.

## Discussion

- Every game is built to lose the player money, so the only variable is how long they stay — which makes the hotel, shows, and free drinks the mechanism rather than a second business. Where else is the hospitality really the machinery?
- The Wynn gives away $200–400 million a year in food, rooms, and drink, roughly 9% of what it takes off gamblers. How would you decide whether that number should be higher or lower?
- Online gambling removed the janitors, dealers, cashiers, and lobster, and offered infinite tables across fifty states. If the costs fell away, why did the profits not follow?
- If the physical casino's costs were actually its retention mechanism, what does an online operator have to spend on instead — and is that spending as durable?
- You are a regulator watching sports betting apps. What single intervention would change the most, and what would it cost the state that legalized them for revenue?

## Sources

Casino segment revenue, operating and EBITDA margins from Wynn, MGM Resorts, and Caesars annual reports; DraftKings and FanDuel revenue, losses, user counts, and funding from company filings and reported rounds; state tax rates, license counts, and hold rates as presented in the episode

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/online-gambling](https://modern-mba.com/case/online-gambling), or watch the episode at https://www.youtube.com/watch?v=sZ-NU1vK0wM.