After swiftly abandoning a plan to tax winning bets in states with high sports betting taxes, DraftKings CEO Jason Robins revealed that the company is exploring alternatives in jurisdictions with onerous tax structures.
At the Bank of America’s Gaming and Lodging Conference last week, Robins acknowledged that DraftKings customers opposed the proposal of a small levy on winning sports bets placed by clients in Illinois, New York, Pennsylvania, and Vermont to counteract the elevated taxes in those states.
“Clearly, this was something that our customers — they didn’t like this type of solution,” Robins remarked at the conference. “Our thinking behind it was, well, we can invest more in promo for you and other things because we’re going to be collecting more upfront. But we got feedback that people didn’t like this particular solution, so we changed it.”
DraftKings announced the surcharge plan on August 1 but reversed course less than two weeks later as none of its competitors adopted a similar approach. Although the company didn’t explicitly link the two events, DraftKings scrapped the surcharge plan on August 13, coinciding with FanDuel parent Flutter Entertainment reporting second-quarter results and indicating no intention to follow DraftKings’ tax strategy.
Robins outlined that DraftKings is currently looking into various options to navigate high taxes on online sports betting in certain states. While he did not specify particular ideas, he emphasized the need for alternative solutions.
Illinois and New York present notable challenges for operators like DraftKings and FanDuel. Illinois recently adopted a graduated tax scheme imposing higher taxes on the largest internet sportsbooks, while New York enforces a 51% tax rate on sports wagering, the highest among large states.
“The bottom line is, at some point, I guess it depends on what happens in other states, but I don’t think that in perpetuity, it will make sense for anybody to completely just eat any tax increase that happens anywhere,” Robins said at the conference.
Analysts speculate that Illinois and New York could pass iGaming legislation next year, potentially providing operators like DraftKings a way to offset some of their sports betting tax burdens.
Shares of DraftKings have seen a modest increase of 5.47% year-to-date, a tepid performance compared to some peers and broader domestic equity benchmarks. A primary reason for the stock’s lethargic performance in 2024 has been the lack of significant positive legislative action. No large states legalized online sports betting this year, and the number of states allowing iGaming remains static at six. With less than four months left in the year, the prospects for legislative changes appear slim. However, long-term growth remains a possibility.
“DKNG’s total addressable market should increase over the next 3-5 years as states legalize sports betting,” noted Zacks Equity Research. “As budget deficits continue to balloon, more states will likely turn to sports betting as a much-needed tax revenue source.”
