DraftKings swiftly abandoned its controversial plan to impose surcharges on winning sports bets in high-tax states, a move that likely averted significant regulatory backlash, particularly from New York officials. This decision came just weeks after the proposal’s initial unveiling, which sought to offset the company’s tax burdens in states like New York, Illinois, Pennsylvania, and Vermont. The swift retreat was essential, as New York State Gaming Commission Chair Brian O’Dwyer expressed severe concerns, even going as far as to describe the plan as “misleading and detrimental to the consumer.” He emphasized the commission’s dedication to consumer protection, hinting that any future proposals of this nature would face intense scrutiny and probable rejection.
DraftKings announced its surcharge initiative on August 1 with the release of their second-quarter financial results. This plan was unique; rival companies BetMGM and Caesars Sportsbook had not indicated similar intentions in their financial disclosures. The situation escalated when competitor Rush Street Interactive criticized DraftKings by publicly committing not to tax winning bets. The final blow came on August 13, when FanDuel’s parent company, Flutter Entertainment, reported its second-quarter results and declared no plans to introduce a surcharge. Within an hour of Flutter’s announcement, DraftKings scrapped its surcharge plan, recognizing customer dissatisfaction with the proposal.
New York, the largest state with a competitive online sports betting market and a staggering 51% tax rate on online sports wagers, holds significant sway. O’Dwyer confidently reiterated New York’s position, stating that the state remains attractive for sports betting businesses and sees no need to alter current regulatory or tax frameworks.
Meanwhile, gaming operators are grappling with the challenge of high sports betting taxes in populous states like Illinois, New York, and Pennsylvania. These are key markets that companies cannot afford to ignore despite the financial pressures. To balance this, some operators, such as FanDuel, plan to reduce promotional spending as a way to manage costs. Illinois, for instance, introduced a graduated tax system in July, which increases the tax burden on higher-revenue operators like FanDuel and DraftKings.
Speaking at Bank of America’s Gaming and Lodging Conference, DraftKings CEO Jason Robins stressed the complexities companies face with rising taxes, asserting that it’s unrealistic to expect any entity to absorb all tax increases without seeking remedial strategies.
