DraftKings has announced it will be levying a surcharge on winning bets in states that have a high tax rate on top-rated sportsbooks’ revenues beginning in 2025 and so far, its opinion has not changed.
Is the Juice Worth the Squeeze?
Some industry insiders believe that the loss of customers seeking an alternate sportsbook without DraftKings’ after-bet fee will cost the Boston-based bookmaker customers, and those lost revenues will not be mitigated by the rumored 3.2% surcharge on winning wagers.
The surcharge will only apply to customers in states with a high tax on sportsbooks with the likely targets being New York, Pennsylvania, Illinois, and Vermont beginning next year. All other states with lower tax rates on revenues will not be subject to the surcharge.
It is an industry-first, to be sure, and a gamble that could cut deeply into DraftKings’ market share that it currently dominates with its chief rival, FanDuel. The bold strategy could be a bluff to get state legislators to reduce the onerous tax in those states where the tax is above 30% on sportsbooks’ revenues.
Betting on a Backlash
However, the only way that will happen is if other sportsbooks, like market leader FanDuel, also impose a similar surcharge causing bettors to call their state legislators to get the tax reduced. Should that happen, the surcharge would likely be removed. If not, it could trigger sports bettors to seek alternatives like offshore sportsbooks or local bookies that do not impose a tax on winning bets.
“Obviously, some people might just react negatively to the idea of being charged at all,” DraftKings CEO Jason Robins said. “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.”
People Are Talking
Despite the avalanche of backlash, DraftKings does not appear to be backing down. FanDuel has an earnings call this week and stakeholders are curious to find out where the sports betting behemoth stands on a surcharge in high-tax states.
If Flutter Entertainment, the parent company of FanDuel, aligns with DraftKings it will empower others in the industry to follow suit. However, if not, DraftKings will likely be on an island of its own and may feel the pressure to rescind the highly controversial surcharge before it is ever implemented.
No Turning Back
When Robins was asked if this decision could be reversed, he said, “As of now I don’t think there would be any reason that we wouldn’t implement it. But obviously, we’re paying close attention to customer feedback, and if we hear anything that makes us change our mind, we’ll certainly let you know.”
Sports betting legend, Billy Walters, commented on DraftKings’ proposed strategy, saying, “Everybody’s kind of lost this deal,” Walters said. “The politicians supposedly did this for the citizens. They wanted to give them a legal, lawful place to bet where there was no criminal element and taxes and jobs could be created, yet people were going to be treated fairly.
“What’s happened is they’ve allowed a monopoly to get created, and when you’ve got a monopoly, the only person that wins is the person that’s got the monopoly.”
