DraftKings, Penn, Other Sports Betting Stocks Calm Ahead of March Madness

Following some sizable gains earlier in the week, shares of DraftKings (NASDAQ:DKNG), Penn National Gaming (NASDAQ:PENN) and other sports wagering-related stocks are mostly docile in late trading Friday. But with the NCAA Tournament looming, that calm may not last long.

With conference tournaments in full swing, “Selection Sunday” is just two days away. The NCAA Division I men’s basketball tournament, also known as March Madness, commences next week. That’s meaningful for sportsbook operators because it’s one of the most wagered-on events in the US.

For the likes of DraftKings, Penn National with its Barstool Sportsbook, Flutter Entertainment’s (OTC:PDYPY) FanDuel, and MGM Resorts International’s (NYSE:MGM) BetMGM unit, the 2021 edition of March Madness is potentially lucrative because of pent-up demand for the event. It was canceled last year by the coronavirus pandemic. Some 14 states joined the live and legal sports wagering fray since the 2019 tournament.

We estimate that in a mature 50-state market with optimal operating conditions, March Madness would annually generate $15.9 billion in handle,” said research firm Eilers & Krejcik in a report out today. “The tournament — a 67-game slate played over 19 days — is also a tentpole customer acquisition event for the US sports betting industry.”

The event is also potentially impactful for investors because it can provide a glimpse into what typical first-quarter earnings and revenue trends will look like for operators. Last year, conference tournaments and the “Big Dance” were scrapped by the pandemic, taking a major top-line opportunity off the table for sportsbook companies and states alike.

Regional Opportunities

Typically, the NCAA Tournament is held in a slew of cities across the US, culminating in the Final Four at a predetermined location. That won’t be the case this year, as the NCAA is emulating the NBA playoff bubble format and conducting the entire event in Indiana, owing to COVID-19.

“Our analysis of Google Trends indicates that interest in college basketball betting is highest in Iowa, Indiana, Michigan, and Illinois. Indiana, which plays host to the tournament this year, is likely to see particularly high levels of betting activity,” according to Eilers & Krejcik.

DraftKings is live in Illinois, Indiana, Iowa, and Michigan, among other states. In a matter of good timing, Penn’s Barstool Sportsbook debuted in Illinois earlier this week, joining Michigan and Pennsylvania as the states where the app is available. Of the four states mentioned above, BetMGM is available in three, with Illinois being the outlier.

Expect More in 2022

With the regulated US sports wagering landscape rapidly evolving and states seeking new revenue streams, it’s likely the 2022 NCAA Tournament will be accessible to a broader swath of gamblers than this year’s edition.

“By the end of next year, we expect that 33 states will be live with sports betting — including the college basketball hotspot of Kansas,” notes Eilers & Krejcik.