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Stocks of DraftKings, Flutter and other gaming companies fall on Illinois tax hike

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DraftKings, Flutter Entertainment (owner of FanDuel Group) and FanDuel Group all saw their share prices decline on the US stock market yesterday. The US market was reacting negatively to Illinois’ proposed tax increase for gambling.

Illinois legislators discussed the rise during the 2025 budget discussion over the weekend. The plans have not yet been approved but the increase has already affected leading operators such as DraftKings, Flutter and others.

Current proposals are for a progressive wagering tax to replace the 15% flat rate. The rates would be set between 20 and 40 percent, based on the adjusted gaming revenues (AGR) of each operator.

Taxes of 20% would be levied on licensed operators who generate AGR of more than $30m per year (PS23.5m/EUR27.6m). Operators who report more than 200m would be subject to a rate of 40% – 167% higher than the current tax. It would be the US’s second highest tax rate behind New York (51%).

For AGRs between $50m and $100m, the rate is 30%. Between $100m-200m it’s 35%.

Major operators like DraftKings, FanDuel and others would be eligible for Illinois’ highest tax rate. The plans have yet to be approved but the proposed increase was passed on to the operators on Tuesday. Markets were closed Monday in US for Memorial Day.

DraftKings: Stock up and Flutter as the game closes

The impact of these proposals on DraftKings, Flutter and other sites with a large presence in Illinois was evident at the opening of yesterday’s market.

Flutter’s stock, which closed yesterday at $196.64, was down 3.7% from its previous closing price of $204.11.

The Flutter Stock continued to decline throughout the day, before ending at $188.33 US. It is 7.7% less than Friday’s final price before the weekend.

The trading patterns for DraftKings and their longtime competitor are similar. DraftKings shares ended the week at $40.75 but fell by 12.0% within one hour after Tuesday’s market opened to $35.88.

DraftKings recovered a little bit throughout the remainder of the day. Its closing price, $36.61, is 10.2% less than Friday’s afternoon.

What do analysts say about Illinois?

Truist analysts are unsure of how operators will react to the market and proposed tax increase. The analysts have set out how the new rate will affect current Illinois licensees.

According to FY23 data, FanDuel as well as DraftKings are both subjected to a 40% tax. FanDuel would have had to pay $102m more in taxes with its AGR of $400m. DraftKings would also be required to pay $78m extra with their AGR.

Tax hikes would have a lesser impact on other operators, but they are still visible. Rush Street Interactive’s $82m annual growth rate would be taxed at 30%, which means an additional $12m is due on the $82m posted for FY23. BetMGM (43m AGR), Penn Entertainment (38m AGR) & Caesars ($33m) all fall into the 20% bracket.

Analysts say that this may allow smaller operators to catch up to DraftKings or FanDuel. However, there could be wider implications – particularly if more states raise taxes.

In the past year, lawmakers in several states considered raising wagering taxes. So far, Ohio legislators have only taken any action. Massachusetts lawmakers rejected last week proposals to raise the tax rate to 51% from 20 percent.

The Truist analyst said that the graduated tax system could provide an opportunity for smaller companies to take some of the market from the large ones while maintaining lower tax rates relative.

The dominance of DraftKings and FanDuel is not only due to the promos and odds, but also their technology offerings. There are also the larger risks, such as more states raising taxes that may or may be progressive.

Tax increases could fuel illegal gambling

A second point of concern is that it may lead licensees to reduce offers in Illinois. This could in turn lead more players to use illegal sites, who offer similar promotions, but don’t hold a permit and are therefore not subject to the tax laws.

Analysts cited a statement by the Sports Betting Alliance. This coalition includes major operators such as FanDuel DraftKings, and BetMGM. The group criticized the hike in the price and warned that it would force players towards illegal operators.

Analysts at Truist said that they agree with the Alliance’s response, but also believe states underestimate the existence of illegal markets. On-shore operators are fierce competitors in these markets.

We conducted a survey on online sports bettors and found that 31% of the respondents placed their wagers offshore. However, 71% VIPs did. This statistic is consistent with data from Juice Reel, which shows that offshore books receive 18% of all bets tracked on the platform. However, 46%/50% online sports betting revenues/handles are handled by off-shore bookmakers.

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