US sports betting operators have long been grappling with ways to navigate increasingly high tax rates. But DraftKings’ new idea isn’t sitting well with bettors or analysts.
DraftKings spurred debated among the wagering community on Thursday (1 August) when it announced plans to implement a gaming surcharge for players in high tax states.
In its Q2 business update, the company said it has “plan to address high tax states”. That is to “roll out a gaming tax surcharge” starting 1 January 2025. This will be applied to winning bets “in any state with a tax rate above 20% that has multiple sports betting operators”. Those criteria currently apply to New York, Illinois, Vermont and Pennsylvania.
New York’s tax rate is 51%, Pennsylvania is 36% and Vermont is 20%. Illinois recently implemented a sliding scale that caps out at 40% for the highest-earning operators. The bottom of the scale is 20%.
DraftKings asserted the surcharge will be “fairly nominal to the customer”. The only example offered was in Illinois. In that market the charge “will amount to a low to mid-single digit percentage of the net winnings a customer would have previously received”.
In its Q2 earnings presentation, the company said the surcharge would be “treated as a separate transaction” when paying winnings. Overall, the change is expected to boost adjusted EBITDA starting next year.
Announcement sparks outcry among bettors, analysts
DraftKings’ announcement caused immediate debate among the wagering community. X users and commentators were quick to criticise the move.
Analysts at the UK’s Regulus Partners sent a note condemning the surcharge. The advisory said it would “lose market share, damage a brand and undermine credibility in one easy step”.
“To suggest this is brave is a euphemism, in our view, and the brand is already likely to be suffering damage,” they said. “There is only one sensible thing for the DaftKings board to do now – publicly dump the policy, say sorry and move on, while privately enquiring how on earth such a self-defeating policy could be publicly announced (alongside a US$1bn share buyback approval) – maybe while enjoying a Bud Light.”
Richard Schuetz, a former casino executive and regulator, penned an op-ed in Casino Reports offering a different perspective. Schuetz posited that CEO Jason Robins could believe so strongly in his company’s brand that bettors will stay loyal despite the surcharge. But he personally had another idea.
“I believe what Jason (Robins) thinks is that if he raises his prices, all others in the market will follow suit,” he wrote.
No other operators have yet announced plans to follow suit with a similar plan. No such charge was mentioned by MGM in its recent earnings call. FanDuel’s call is not scheduled until 13 August.
