In early August, DraftKings had threatened to impose a surcharge on winning bets in high-tax states like New York but 13 days later rescinded the proposal. However, it has recently come to light that the New York Gaming Commission would not have approved of such a surcharge.
Bluff Called
DraftKings made a bold announcement on August 1st, signaling the company would implement a surcharge on winning bets, but only in states with excessively high tax rates. That put New York bettors in the crosshairs and was a not-so-thinly-veiled attempt to nudge lawmakers to consider reducing the state’s highest in the nation 51% tax rate.
The surcharge was scheduled to go into effect on January 1, 2025, but much depended on whether its competitors would follow suit. The company got its answer when Flutter Entertainment, the parent company of market leader FanDuel, announced in a second-quarter earnings call that it would not be following DraftKings’ lead, which proved to be the death knell of the proposed surcharge.
Only 13 days after announcing the surcharge, DraftKings CEO Jason Robins 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 suggested it was his customers’ dissatisfaction with the surcharge that ultimately caused him to shift course, but it is clear that FanDuel’s refusal to cooperate was the determining factor. Until this point, we had not heard from another interested party, the New York State Gaming Commission, until now.
Commish Speaks Out
New York State Gaming Commission Chairman Brian O’Dwyer said this week that he “looked with great alarm” at DraftKings’ “gaming tax surcharge” in four states, New York included.
Although the precise surcharge rate was unclear, with some sources reporting DraftKings expected to impose a 3.2% tax on winning wagers, O’Dwyer stated the Boston-based bookmaker was set “to implant a 20% surcharge on any payout of winning bets.”
“I view that proposal as both misleading and detrimental to the consumer,” O’Dwyer said during the regulator’s meeting. “I am, of course, pleased that the proposal has been withdrawn, and I remind all our licensees, however, that this commission is committed to protecting the consuming public and that any proposal such as the one advanced by DraftKings will be subject to the strictest scrutiny and, if appropriate, be rejected.”
O’Dwyer further stated, “Obviously, New York remains an attractive venue for those who are in the business of sports betting, and I see no reason why we should alter our present regulatory or taxing environment.”
These most recent statements were a shot across the bow at DraftKings and any other sports betting licensees that unilaterally decide to impose fees or taxes on its New York customers. Although the onerous 51% tax is not going away anytime soon, it is clear that sportsbooks are considering reducing their advertising and promotional budgets in order to combat the deep cut in their revenues, particularly now that the market has largely matured and early adopters are no longer in play.
