‘March Madness’ on Pace for $4.5B Handle, Says Macquarie Analyst

The NCAA Men’s Basketball Tournament, known as March Madness, resumes Thursday with half of the Sweet 16 games. Macquarie analyst Chad Beynon estimates the event will generate $4.5 billion in legal handle for North American sportsbook operators.

In a note to clients on Wednesday, Beynon said the tournament’s first two rounds likely drove 70% of overall sports wagering handle last week. Those legs of March Madness are usually the biggest handle contributors during the event, owing to the massive amount of games available to bettors.

We estimate the Sweet 16 (8 games) and Elite 8 (4 games) rounds combined represent ~55% of weekly sports betting handle (Mar 23-25) while the Final Four (2 games; April 1) and Championship (1 game; April 3) represent 40-50% of handle,” wrote the analyst.

With those statistics in mind, the tournament likely drives 30% of North American sports betting handle in March, and 10% of next month’s total.

Upsets Alter Hold Outlook

Large handles are one thing. But analysts typically focus on sportsbook operators’ hold data — the percentage of cash retained for each dollar bet.

Beynon notes the average hold on Friday, March 17, was 8%. But it should have been closer to 4% if not for the Purdue loss. However, bettors’ proclivity for betting overs was a boon to operators over the tournament’s first two rounds.

“Of note, Over/Under bets were a big positive for sportsbooks, with 67% of the games going under,” observed Beynon. “Assuming average hold for the remainder of the month, we estimate 1Q23 market hold is trending close to 8%, but we expect most operators to achieve hold 100-200bps below the market hold.”

Macquarie Stock Idea, New York Hold Analysis

Looking at February hold data from New York, Beynon noted that FanDuel and Resorts World led the way at 9.1% and 9%, respectively. DraftKings (NASDAQ: DKNG) and BetMGM, the second and third-largest domestic online sportsbook operators behind FanDuel, checked in at 6.8% and 7%, respectively.

Bally’s (NYSE: BALY) BallyBet posted a February hold of just 1.5% in New York. By that metric, the next-worst operator was Caesars Sportsbook. But that company notched nearly triple the February hold in that state, as Bally’s did.

Beynon has outperformed ratings on six gaming stocks with sports wagering exposure, including DraftKings and Caesars Entertainment (NASDAQ: CZR). Based on most potential upside relative to his price target, Beynon’s top pick is Rush Street Interactive (NYSE: RSI), which needs to more than double to reach the analyst’s price objective of $7.