DraftKings CEO says the company’s surcharge on winning bets in high-tax US states was a trial balloon worth floating and that mobile sportsbooks will have a better handle on dealing with states threatening to increase taxes on revenues.
Bluff Called
DraftKings CEO Jason Robins spoke at the Bank of America’s Gaming and Lodging Conference last week and discussed his company’s brief dalliance with imposing a surcharge on winning bets. It was a novel idea to mitigate the steep taxes that some states, like New York, Pennsylvania, and most recently, Illinois, impose on sportsbooks’ revenues and it was set to start at the beginning of 2025.
It was not surprising there was a public uproar despite Robins’ rationale for its implementation and why he believed his customers would ultimately agree to it.
“We feel it is an important step that consumers will ultimately understand if they feel the product and experience is better, then they’d rather pay for that than somewhere else that maybe doesn’t have as strong a product.”
That didn’t pass muster with the public but Robins and the DraftKings’ C-Suite were eagerly awaiting the reaction of other sportsbooks, particularly industry leader FanDuel, hoping they too would adopt the surcharge in high-tax states.
No Support
Rush Street Interactive (RSI), the parent company of BetRivers, released a statement saying, “As we put our customers first, it was an easy decision for us. RSI remains committed to maintaining its leadership position in the industry by continuously prioritizing the needs and preferences of its players.
“We believe that RSI’s focus on customer satisfaction, coupled with its innovative rewards and loyalty programs, sets a benchmark for excellence in the online gaming industry,” he added.
However, when FanDuel’s parent company, Flutter Entertainment, shot the idea down at its second-quarter earnings call on August 13th, the jig was up and DraftKings knew it couldn’t go it alone without jeopardizing market share.
New Playbook
The curtain closed on that ill-fated gambit shortly after FanDuel announced it would not be following DraftKings’ lead and imposing a surcharge of its own. Robins commented on the process at the gaming conference last week and said:
“We decided to throw it out there, see what the reaction from customers was, see what the reaction from state governments was, and after analyzing that, determined it wasn’t the right thing at this time. But I do think that the way we went about it, I’m very proud of, because I think it was disciplined, well thought through. And in the end, we were able to get the information and feedback from the market we needed without actually costing ourselves anything.”
Robins is concerned that other states may decide to increase taxes on their sportsbooks like Illinois recently did, which will see the most popular sportsbooks like DraftKings and FanDuel pay as much as 40% of its adjusted gross revenues in the Land of Lincoln.
“I don’t think that, in perpetuity, it will make sense for anybody to completely just eat any tax increase that happens anywhere,” Robins said.
Potential Impact of Tax Increases
The danger that states run when raising taxes is that the sportsbooks will be less amenable to advertising and offering promotions to woo customers to their sites, thus creating more revenue for themselves and, by default, the states. Their point spreads and odds may also become less attractive to the betting public which could drive them to offshore sportsbooks that offer better bonuses and more appealing odds.
“Anytime you see something that isn’t within your control entirely, that’s going to have that material of an impact on your business, that’s not a great feeling,” Robins said. “So, I’m obviously concerned about it. But I also have heard arguments on the other side that, hey, this is probably going to only be confined to a handful of states. Maybe there’ll be a few more. But really, there’s not a long list of candidates of states that we think are highly likely to raise taxes. So, we’ll have to see.”
