US Regulated Sports Betting Companies Winning Big This March Madness....Yet Still See Mounting Losses?

Written by :

Gilbert Horowitz

Published on :

22 March, 2022

$3 billion expected to be wagered during this year's NCAA Tournament
Sports betting companies winning thus far with underdogs 10-6 versus the public favorites
But these firms continue to lose money nonetheless

Macquarie Group Senior Analyst Chad Beynon joins Yahoo Finance Live to discuss the outlook for sports betting companies amid March Madness betting on the NCAA men's basketball tournament.

Among the topics of discussion: Americans were expected to bet over $3 billion during this year's NCAA Tournament.

So far, Beynon suggests the sports betting companies are winning.

"From an actual revenue standpoint, looking at the outcomes from the first two rounds, the sports betting companies are winning," he said. "Traditionally, the consumer has these multi-game parlays, and they usually pick the favorites. And what we've seen so far is the underdogs are 10 and 6, versus the favorites. And as you mentioned, there's no perfect bracket. So I think at this point, the sports betting companies have a little bit of an edge through the weekend."

Yet despite the positive outcomes, these companies continue to lose money on the stock market.

"They've been pulled down by the contagion from other software type of areas. In terms of the actual losses, I'd say it's probably three-fold. One, the startup costs are expensive. Companies like DraftKings employ over 3,000 people who are improving their product tech. And that is completely separate from the hundreds of millions of dollars they're spending on marketing to acquire customers.

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"The second thing is, from a promotion standpoint, giving people free bets, giving people sign-on bonuses. That is net of your net revenues. So that's not bringing anything to the bottom line. And then I'd say the third thing is-- and this is more of what we're hearing from the companies-- this acquisition period or these people are the golden cohort.

"And companies believe that they will stick around for a very long time. So it's worth it to kind of overspend for the initial period. And then in years two, three, four, or five, that's where you see the margin expansion. Revenues have gone higher than expected. But to your point, even the losses have also gone higher than expected."