US betting operator DraftKings yesterday (1 August) announced a new customer surcharge on winnings in high-tax states.
DraftKings yesterday (1 August) announced a new customer surcharge on winnings in high-tax states.
The new policy, announced alongside the operator’s Q2 results, would see a “fairly nominal” fee placed on net winnings in those states with a sports betting tax rate above 20% of GGR.
It follows recent share price hits to major US operators, driven by tax increases in several markets including Illinois as well as the prospect of further rises.
DraftKings CEO Jason Robins said: “We plan to implement a gaming tax surcharge in high tax states that have multiple mobile sports betting operators on January 1, 2025 which could drive adjusted EBITDA upside on an annual basis.”
DraftKings argued the business only implemented the measure after some states opted to tax operators more than they can afford while retaining profitability and staying competitive with the unlicensed market.
While the operator did not outline the surcharge’s exact rate, it said it would stand at a low to mid-single digit percentage in Illinois.
In its Q2 earnings presentation, DraftKings said the change would be integrated seamlessly into its mobile app.
It also clarified the surcharge would be calculated as a separate transaction when calculating winnings.
DraftKings has faced a backlash from users on X, with many poking fun at the measure.
The announcement has also faced a mixed reception from analysts, with some warning the measure could prove disastrous from a competitive standpoint.
Analyst reactions
Analysts at Regulus Partners said: “To suggest this is brave is a euphemism, in our view, and the brand is already likely to be suffering damage.
“There is only one sensible thing for the DraftKings board to do now – publicly dump the policy, say sorry, and move on, while privately enquiring how on earth such a self-defeating policy could be publicly announced.”
Regulus added competitors have no structural reason to copy DraftKings, and therefore probably won’t.
This, they argued, would leave the operator exposed as offering visibly worse value to customers with winning bets.
“We cannot think of a better way to destroy a brand proposition based on product, value, and customer service – and DraftKings has nothing else to offer.
“The fact that DraftKings’ justification is economically illiterate simply adds fuel to the fire, in our view.
“It is not up to politicians to set taxes that protect aggressive marketing budgets, escalating product fees, and sky-high access rights.
“It is up to US politicians especially to let the market provide its own corrective to companies that seek to improve margins at the expense of customers.
“The US market will no doubt provide a very aggressive corrective if this policy is enacted. DraftKings – don’t be daft.”
However, analysts at JMP Securities responded more positively, arguing the surcharge was creative and indicated how far the company was willing to go to protect profitability.
They said: “We look to get clarity on the financial benefit toward its outlook, but we question the long-term ramifications with states and regulators as consumer protection is beginning to be a larger topic in the industry.”