How Poor Weather and ‘March Madness’ Upsets May Impact Q1 Sports Betting Earnings

Several gaming companies will report earnings in the coming weeks, giving investors a clearer picture of what impact “March Madness” sports betting and inclement weather earlier this year will have on the results of companies including DraftKings (DKNG), MGM Resorts International (MGM), and Penn Entertainment (PENN).

The NCAA Division I men’s college basketball tournament that ended Monday with Connecticut winning its second straight championship is a massive event for sports betting every year, both in the number of people filling out brackets and because there are so many individual games for consumers to place bets on. The American Gaming Association estimated that American adults would legally bet $2.72 billion on the men’s and women’s NCAA tournaments, equivalent to 2.2% of the total amount that was legally wagered across the industry in 2023.

The women’s tournament, which ended Sunday with an undefeated South Carolina team winning the title, could also have contributed larger-than-expected activity to the betting companies. It attracted record viewership, with the championship game between the Gamecocks and Iowa—led by star Caitlin Clark—drawing the largest audience for any college basketball game, men’s or women’s, on ESPN platforms ever. In fact, the women’s championship game outdrew the men’s for the first time.

Bank of America analysts said in a Monday note that upsets in the early rounds could deliver a slight hit to the earnings of DraftKings, while March results will be a bigger deal for Penn’s ESPN Bet, as the operation only launched last November and is still working to gain market share and become profitable.

“The first weekend of the March NCAA tournament had some unfavorable outcomes, but we think the impact is limited ($10-20M) vs. larger swings for a comparable NFL weekend,” Bank of America analysts wrote. “For PENN’s ESPN Bet, Q1 will come down to March, but we see results coming in below expectation and guidance due primarily to lower hold and higher promo driving lower [net gaming revenue].”

In a Wednesday note on gaming data in the state of Maryland, JPMorgan analysts wrote that ESPN Bet had the fourth-largest market share in the state in March, trailing Flutter Entertainment-owned (FLUT) FanDuel, DraftKings, and BetMGM.

For Penn and MGM, which also operate physical casinos, BofA and JPMorgan analysts have noted recently that brick-and-mortar casinos could see their earnings impacted by severe weather that affected parts of the U.S. at the start of the year.

“PENN is seeing stable demand trends at its brick & mortar properties, though noted severe January weather (well-known and called out by peer Regional gaming operators) and improvement subsequent to that impact,” JPMorgan analysts wrote in a March note, summarizing comments of Penn executives at a recent JPMorgan forum.

Other gaming companies reporting earnings later this month or early in May include Red Rock Resorts (RRR), Boyd Gaming Corporation (BYD), and Caesars Entertainment (CZR).