DraftKings CEO compares proposed surcharge on winnings to hotel taxes 

DraftKings CEO and co-founder Jason Robins has claimed the introduction of the company’s gaming tax surcharge is “what’s best for us,” as he compared the measure to additional taxes consumers pay on hotels and taxis. 

The Boston-based giant revealed plans for customers in New York, Illinois, Pennsylvania, and Vermont to pay a “fairly nominal” charge on net winnings from 1 January 2025.

The measure is set to be introduced as a means to “ensure an operational effective tax rate of approximately 20%”, according to the operator.

DraftKings stock is down 11.7% at the time of writing, as it also published its Q2 earnings report in which revenue hit $1.1bn.

Speaking on an analyst call today, August 2, Robins said the company had “thought through this quite a bit”, as he further expanded on the plan.

He said: “I think every company has to do what’s best for their own business. We believe this is what’s best for us. I would imagine if that’s our calculus, then others would come to the same conclusion. But we really don’t know, and we’ll have to see.

“Obviously, there might be other ideas for how to implement something like this that might be better than what we came up with. We thought through this quite a bit, but you never know.

“We do have some time between now and 1 January and we’ll see what happens.”

Drawing comparison to other sectors, Robins suggested that consumers are happy to pay additional taxes when using hotels or taxis, with 100% of costs being passed on to the end user. 

He also claimed the gaming tax surcharge would be used to plug the gap between an effective 20% tax rate and the rates in the four states, each of which surpass the 20% threshold. 

New York has a 51% tax rate on gross gambling revenue (GGR), with Illinois, also a sports betting-only state, having scrapped its 15% flat rate for a progressive framework of 20% and 40% of GGR from 1 July. Pennsylvania and Vermont’s tax rates on sports betting GGR are 36% and 31%, respectively.

Robins said: “If you look at the way it’s done in other industries, whether it be hotel taxes or even sales taxes when you by something at the store, taxis, you name it — its typically 100% passed along to the consumer. We’re obviously subsidising a chunk of it.

“From hotels to taxis, [they] all have taxes in various states, and they get charged to the consumer. People may gripe about it, but I don’t really see behaviour change because of it.”

Robins went on to reveal that DraftKings has yet to conduct any A/B testing over the surcharge as he insisted the take would be “nominal” for consumers.

“We haven’t [done any A/B testing]. We actually still think there’s work to do to implement it. I think it is hard to A/B test something like that,” he explained.

“We are launching in four states so we’ll certainly see the impact there and, obviously, it won’t be a perfect A/B test, but I think that we have enough comparable data from other states and enough of an understanding of what we would expect from consumer behaviour.”

The CEO went on to claim that the benefit for customers of engaging with a licensed operator in DraftKings, as opposed to heading to a street bookie or an offshore sportsbook, meant the cost could be absorbed on the consumer end.

He continued: “Some people might react negatively to the idea of being charged at all, but it’s really fairly nominal.

“It makes a huge difference in our ability to make a reasonable margin and also more importantly, compete with the illegal market, which pays no taxes and has the ability to invest 100% of revenue into product.

“For us to be able to be competitive with the illegal market and invest properly in the product and consumer experience in a state that has a very high tax rate, we feel is an important step that consumers will ultimately understand.”

Despite the reaction to the proposed surcharge, including a widespread condemnation among US betting fraternity on social media, Robins said that he didn’t foresee a reason as to why the measure would not be implemented.

He noted: “As of now, I don’t think there would be any reason why 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.”

A slide from DraftKings’ presentation deck illustrated how the surcharge would be applied, with an example of a $10 bet in Illinois at evens, paying out $20, including the stake, taking $0.32. 

In this instance, the charge was 1.6%, yet customers in New York look set to pay more than this due to the state’s higher tax rate. 

In a note published by Regulus Partners, the analyst firm said the surcharge was a way to lose market share, damage a brand and undermine credibility “in one easy step.”

It added: “There is only one sensible thing for the DaftKings [sic] 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.”