DraftKings has swiftly retracted a plan to impose surcharges on winning sports bets in high-tax states, a move that might have drawn severe backlash from New York regulators. New York, which imposes the highest sports wagering tax in the U.S., alongside Illinois, Pennsylvania, and Vermont, was significantly affected by DraftKings’ proposal to levy modest charges on victorious bets. Immediately, customers decried the notion, accusing DraftKings of transferring its tax burden onto them. This proposition didn’t sit well with New York State Gaming Commission Chair Brian O’Dwyer, who expressed his serious concerns at a recent commission meeting.
“I view that proposal as both misleading and detrimental to the consumer,” said O’Dwyer. “I am, of course, pleased that the proposal has been withdrawn, and I remind all our licensees, however, that this commission is committed to protecting the consuming public, and that any proposal such as the one advanced by DraftKings will be subject to the strictest scrutiny, and if appropriate, be rejected.” New York holds a 51% tax rate on online sports betting.
DraftKings originally revealed the surcharge scheme when it announced its second-quarter results on August 1, a time when competitors like BetMGM and Caesars Sportsbook released their financial results without suggesting any similar plans. The scenario worsened for DraftKings when Rush Street Interactive, a smaller competitor, publicized on August 5 that it had no intention of imposing any tax on winning bets. The final blow came on August 13 when FanDuel parent Flutter Entertainment declared during their second-quarter results that they wouldn’t be introducing a surcharge.
In response, DraftKings announced within an hour of Flutter’s report that they listened to their customers and would abandon the four-state surcharge plan. New York, being the fourth-largest state and currently the largest with a competitive online sports betting market, recognizes its position. “New York remains an attractive venue for those who are in the business of sports betting, and I see no reason why we should alter our present regulatory or taxing environment,” O’Dwyer further stated.
In states like Illinois, New York, and Pennsylvania, high sports betting taxes are unavoidable realities. These populous areas are highly coveted by gaming companies, prompting operators to explore ways to manage these taxes while continuing to profit. For instance, FanDuel plans to reduce promotional spending in Illinois. Recently, the state initiated a graduated tax system for online sports betting, meaning high-revenue operators like FanDuel and DraftKings will pay significantly more taxes than their smaller competitors.
At Bank of America’s Gaming and Lodging Conference earlier this month, DraftKings CEO Jason Robins mentioned the company’s ongoing efforts to find solutions to manage high taxes, remarking that it is impractical for “anybody to completely just eat any tax increase that happens anywhere.”
