A significant majority of DraftKings shareholders are expressing dissatisfaction with the gaming company’s new plan to tax winning sports bets in Illinois, New York, Pennsylvania, and Vermont.
Recent findings from Jefferies Equity Research indicated that 60% of surveyed DraftKings investors oppose the plan, which was announced in conjunction with the company’s second-quarter earnings report. The disapproval rate is noteworthy, considering DraftKings suggested the minimal surcharge could enhance earnings before interest, taxes, depreciation, and amortization (EBITDA). The company’s 2025 EBITDA projection of $900 million to $1 billion does not account for potential benefits from this tax, which takes effect on January 1 in the aforementioned states.
Of those surveyed, 40% approve of the plan while one investor remained neutral. Jefferies analyst David Katz expressed a positive outlook on the DraftKings initiative. Since the controversial announcement, sports betting circles have been abuzz with criticism and speculation. Experts highlighted that while Vermont’s small size and Pennsylvania’s allowance for promotional spending deductions somewhat mitigate the impact, Illinois and New York stand out prominently in this new tax plan. Illinois recently moved to a graduated tax system for sports wagering, imposing higher taxes on top revenue operators like DraftKings, while New York holds the distinction of having the highest sports betting tax among large states at 51%.
Some DraftKings investors are concerned about how rivals might respond to this move. Speculation is rife about whether competitors, particularly FanDuel, will adopt a similar approach. FanDuel’s parent company, Flutter Entertainment, is set to report its second-quarter results on August 13. Katz suggested that FanDuel could leverage the surcharge against DraftKings, potentially capturing market share from new customers, which could negatively impact DKNG shares. However, thus far, only Rush Street Interactive has publicly declared it won’t adopt such a scheme, while BetMGM and Caesars Entertainment have not indicated any intentions to implement a tax on winning bets.
Some shareholders view the surcharge as a hasty and possibly retaliatory measure that might backfire, especially in states like Illinois and New York, which are considering iGaming legislation. The Jefferies survey highlighted a division among investors regarding the potential outcomes of this decision.
“Others indicated that the risk is high, unless DKNG’s intelligence suggests more states are likely to raise taxes,” Katz noted. He added, “The best case is you offset the tax increase in part, the worst case is you lose more share than you expect and have to reverse the strategy.”
On the other hand, proponents of the DraftKings decision believe it could positively impact the industry and enhance the operator’s free cash flow. These investors argue that bettors should be more aware of their state’s tax regimes and that FanDuel may not follow the same path immediately.
The distinct perspectives among shareholders illustrate the broader uncertainty and potential repercussions of this new tax strategy on DraftKings’ future market position and profitability.
