Arizona March Madness Betting Could Generate $563,000 In Tax Revenue

Arizona March Madness Betting Could Generate $563,000 In Tax Revenue

Arizona March Madness betting could rake in $563,000 in tax revenue from NCAA basketball alone. That’s a sliver of the $127 million in total sports betting handle that Arizona could see on NCAA basketball. Even that is only a quarter of Arizona’s projected total handle of $508 million for all of March.  

Arizona has only released a few months of sports betting data, which means we had to rely on trends in other states to project Arizona’s March and NCAA basketball handle. Luckily, sports betting is a seasonal business, so even Arizona’s limited public sports betting data gave us an insight into its potential March Madness performance. 

Sports betting’s peak season begins in September and ends in March. NFL and NBA kick off peak betting season and March Madness ends it. Across sports betting markets, March is either one of or the single most active month of the sports betting season. A mature market, like Nevada, shows this trend clearly. 

In Nevada, the handle is higher each season from September to March than April to August. Every March, except for March 2020, has had higher levels of handle than the February before it. Most NFL betting ends after the Super Bowl, which takes place before February’s halfway point. 

The next major betting event is March Madness, which obviously does not take place in February. So, mature markets often see a dip in their February handle followed by a spike in their March handle that ends the peak season. 

With this pattern in mind, we were able to project the Arizona March Madness sports betting handle.

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Nerd Box: How We Calculated Arizona March Madness Figures 

We projected the total Arizona March betting handle by drawing from Virginia, which had similar revenue figures in its beginning. Its market is also a similar size as Arizona, providing a roadmap into Arizona sports betting’s possible financial future. 

Excluding Arizona’s first month of sports betting handle, which was lower because it was Arizona’s first month of sports betting, Arizona’s average monthly handle was about $476 million. 

From there, we added a March Madness handle “bump” that’s common across sports betting markets. March Madness often results in an above-average handle compared to the peak season’s average handle. In Virginia, March 2021 handle was 6.72% higher than that peak season’s average monthly handle. So, we applied that increase to Arizona’s average monthly handle, bringing us from $476 million to $508 million in the projected March sports betting handle. 

That’s how we projected Arizona sports betting handle with two months of revenue data.

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From Handle To Gross Revenue 

Once we projected the sports betting handle, breaking the rest of the figures down to NCAA-specific projections was straightforward. 

In comparable markets, NCAA basketball comprises about 25% of the total March handle. In Colorado, it’s 23.6% and in Virginia it’s 27.5%. So, assuming a quarter of March’s handle would come from NCAA basketball was reasonable. That got us from $508 million in total March handle to $127 million in March Madness handle. 

Arizona’s average sportsbook hold remained consistent across its three months of data. With an average hold rate of 9.7%, we projected Arizona sportsbooks to keep $12.3 million in revenue from NCAA basketball alone.    

From Gross Revenue To Tax Revenue 

From there, we jumped from gross revenue to tax revenue. Arizona sportsbooks can write promotions off before getting to taxable revenue. The amount they write off can vary from month to month depending on the events that sportsbooks offer promotions on. The generosity of those offers can cut deeply into taxable income, too. 

So, we took an average of the amount of tax revenue that came from gross revenue. That allowed us to account for the varying amounts of write-offs that Arizona’s sportsbooks made. It also accounted for the different tax rates that Arizona sports wagers are taxed at. Arizona taxes retail sports wagers at 8% and mobile sports wagers at 10%. 

We also excluded Arizona’s first month of sports betting. Sportsbooks generate little — if any — profit in their first months. All that promotional money that goes to buying customers and market share results in low margins that rarely replicate during any month after the first one. In Arizona’s first month of legal sports betting, tax revenue was 0.1% of gross revenue.

So, we projected Arizona’s average adjusted tax rate with October and November 2021. 

That average adjusted tax rate was 4.6%. We applied that to our projected NCAA sportsbook revenue figure of $12.3 million to arrive at our projected March 2022 NCAA tax revenue figure of $563,000.