DraftKings Considers Surcharge as States Raise Sports Betting Taxes
Betting operators have raised concerns in response to several US states announcing plans to increase sports betting taxes this year and now DraftKings is considering imposing a surcharge on customers’ net winnings to counteract high tax rates in several states.
The plan was revealed in a letter to shareholders, which was released on Thursday, ahead of the company’s second quarter results expected on Friday, August 2, 2024.
LISTEN TO THIS ARTICLE:DraftKings’ co-founder and CEO, Jason D. Robins, signed the letter, describing the surcharge as a “solution” to manage the high tax rates. Robins explained that “many revenue-based taxes are passed along to the consumer.”
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He noted that typically, the gaming sector avoids this approach in areas with lower tax rates, with Germany being the sole exception due to its high taxes. However, DraftKings is now contemplating a surcharge on net winnings for customers in states where tax rates exceed 20%. This surcharge would also apply only in states with multiple sports betting operators.
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Impact on Bettors in Four States
New York currently has the highest sports betting tax rate in the nation at 51%. Pennsylvania follows with a tax rate of 36%. Earlier this year, Illinois approved a new betting tax law, setting the highest tax rate at 40% for sportsbooks meeting specific criteria. Vermont also imposes a high tax of 33%.
These states are the most likely to be affected by DraftKings’ planned surcharge on customers’ net winnings. However, Robins clarified that DraftKings will “absorb taxes up to 20%, so customers will only be impacted above this level.” He provided an example, indicating that in Illinois, the surcharge would represent a “low to mid-single digit percentage of the net winnings a customer would previously have received.”
Looking ahead, Robins shared that the company anticipates its 2025 Adjusted EBITDA to be between $900 million and $1 billion, driven by strong growth and customer acquisition in the second half of this year. He also mentioned that there is “additional upside potential” with the proposed tax surcharge.
The surcharge is planned to take effect on January 1, 2025.
Online Reactions from Customers
Sports bettors and enthusiasts have voiced their concerns online, criticizing DraftKings’ decision to offset gambling tax revenue by taking money from winning customers. Despite these plans, DraftKings maintains a leading position in many states. It remains to be seen whether its main competitor, FanDuel, or other industry players will follow suit.
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