DraftKings Q1 Profits Could Be Damped by March Madness

• Strong runs by favorites could weigh on operator earnings.
• NCAA tournaments could offset Super Bowl momentum.

Favorites taking care of business in the NCAA men’s and women’s basketball tournament could be a drag on sportsbook operators’, including DraftKings (NASDAQ: DKNG), first-quarter earnings.

In a Monday note to clients, Needham analyst Bernie McTernan cautioned that the lack of upsets in the 2025 editions of March Madness relative to prior years is potentially bad news for DraftKings and friends because public bettors are more apt to wager on “chalk” than underdogs.

The strong performance by the favorites is generally bad for the sportsbooks, which can be seen by the last week in New York posting a 1.6% hold, the second worst in state history and only the third time the hold was below 2%,” observes the analyst. “As a result, we are lowering our 1Q revenue estimates (on DraftKings) by roughly -$100 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by roughly -$70 million to +$74 million.”

The analyst continues to rate DraftKings a “buy” with $65 price target, implying the stock can nearly double from today’s closing price of $32.88.

March Madness Results May Undo Super Bowl Momentum

The Super Bowl was another low hold event for DraftKings and its competitors because favorite Philadelphia Eagles won, covered, and the over hit — a perfect storm of desirability for public bettors.

Indeed they did. The men’s Elite Eight was comprised of seven one and two seeds with each of the one seeds advancing to the Final Four. The lowest-seeded team to advance to the Sweet 16 was 10 seed Arkansas.

The women’s bracket featured a bit more parity with two three seeds and a pair of five seeds advancing to the Sweet 16, but in what was good news for bettors and bad news for sportsbooks, the cream eventually rose to the top with the women’s Elite Eight comprised entirely of one and two seeds, leading to a Final Four of three one seeds and champion UConn, which was a two seed.

Q2 Off to Decent Start for DraftKings

While favorites performing well in a marquee event such as the NCAA Tournament isn’t to the benefit of sportsbook operators such as DraftKings, Needham’s McTernan said operators may be starting the second quarter on a strong note because Duke — a team heavily backed by the public — lost in the national semifinals on Saturday to the University of Houston.

Duke became the first team in the history of the NCAA Tournament to lose a game despite outshooting its opponent, having fewer turnovers, more free throw attempts, more assists, and more steals.

Houston advancing to the title game has another interesting gaming-related implication. Should the Cougars beat the Florida Gators tonight, Tilman Fertitta will win Bloomberg’s “2025 March Madness Brackets for a Cause” competition. The soon-to-be former head of the Golden Nugget casino empire and the largest investor in Wynn Resorts (NASDAQ: WYNN) is playing for Rainforest Friends for the Future Foundation.