Shares of DraftKings (NASDAQ: DKNG) closed higher by nearly 2% today on trading volume that was more than double the daily average. This uptick follows the company’s reversal on a previously announced plan to tax winning sports bets in four high-tax states. Jefferies analyst David Katz referred to the company’s Aug. 1 surcharge announcement as a “head fake.” DraftKings had initially planned to introduce a surcharge on winning sports wagers in Illinois, New York, Pennsylvania, and Vermont to counter the high tax rates in those states. The proposal was widely criticized across investment and sports wagering communities.
The reversal came after FanDuel parent Flutter Entertainment (NYSE: FLUT) declared it would not implement a similar surcharge. Katz suggested that DraftKings’ initiative may have been intended to ignite debate and raise awareness rather than actually recover margins. He reaffirmed a “buy” rating on DraftKings with a $54 price target, implying a potential upside of over 68% from today’s closing price.
Late Tuesday, DraftKings highlighted that the decision to scrap the surcharge plan was made in response to customer feedback. However, this announcement came just hours after Flutter’s decision, and as DraftKings shares saw a decline following the Aug. 1 announcement. No other sportsbook operator announced similar plans, though some investors had hoped Flutter might validate DraftKings’ move. If DraftKings had not reversed the surcharge, anxious investors could have become increasingly skittish.
Katz noted that some shareholders may have considered the surcharge plan premature, particularly in Illinois and New York, which might contemplate iGaming legislation. Online casinos could serve as a compromise between lawmakers and gaming companies in those states facing high sports betting taxes. Truist Securities analyst Barry Jonas agreed that dropping the surcharge might alleviate some of the recent uncertainties plaguing the stock. He maintained a “buy” rating and a $50 price target, stating that the reversal removes doubts around execution risks but raises questions about how DraftKings will offset the impact and whether guidance needs adjustment.
Amid the 13F reporting season, insights are emerging on how professional investors view DraftKings. Despite recent public relations missteps and a year-to-date decline in stock value, institutional investment in DraftKings remains strong. Money manager Coatue sold all of its 2.3 million shares in the second quarter, and several other investment firms reduced their stakes during the April to June period. However, Soros Fund Management, LLC, the family office founded by billionaire financier George Soros, acquired a modest stake in DraftKings in the same quarter. Overall, institutional ownership of the stock is at its highest levels since DraftKings went public as a standalone company in 2020.
 shares rose 2% on high volume after scrapping a controversial surcharge plan. Analyst maintains "buy" with a $54 target.){kind=link}