DraftKings U-turns on gaming tax surcharge plans after two weeks
Boston-based giant scraps controversial plan shortly after Flutter reveals it would not be implementing a similar policy with FanDuel
DraftKings has performed a dramatic U-turn on its planned gaming tax surcharge in high-tax states after citing customer feedback as the core reason behind the decision.
The operator confirmed the volte-face less around an hour after FanDuel parent company Flutter Entertainment revealed during its Q2 earnings presentation that it would not be following its rival with any sort of surcharge in high-tax states.
A statement posted on DraftKings News’ X account read: “We always listen to our customers and after hearing their feedback we have decided not to move forward with the gaming tax surcharge.
“We are always committed to delivering the best value in the industry to our loyal customers.”
DraftKings first announced the plans as part of its Q2 earnings result on 1 August, a move that sparked furore among players and sent the company’s share price tumbling.
In a note published by Regulus Partners at the time, the analyst firm said the surcharge was a way to lose market share, damage a brand and undermine credibility “in one easy step”.
The note 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.”
Yet at the time the surcharge was unveiled, DraftKings co-founder and CEO Jason Robins said he didn’t think there would be “any reason that we wouldn’t implement it” when responding to a question about whether the surcharge would go ahead, from 1 January 2025.
The plan would have seen DraftKings implement a surcharge to player winnings in New York, Illinois, Pennsylvania and Vermont – four states where the GGR tax rate is north of 20%.
Management had planned for a “low to mid single-digit percentage” being taken from winnings to offset the high tax rates, giving the operator an effective tax rate of 20% in the markets.
New York has a tax rate of 51%, while Pennsylvania is 36% and Vermont takes 31% from GGR.
As of 1 July, Illinois introduced a progressive tax of between 20% and 40% based on operators’ GGR, replacing the previous flat rate of 15%.
DraftKings and FanDuel are the only two businesses that would be placed in the 40% tax bracket.
Robins compared the charge to taxes consumers pay on top of the cost of hotels and taxis as he said he believed the move was the best decision for the company.
On DraftKings’ Q2 earnings call, Robins 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.”
The CEO also revealed no A/B testing had taken place and that he was confident the surcharge would come into play.
Most of DraftKings’ rivals put distance between themselves and any potential surcharge, with Flutter revealing last night it would tighten its marketing spending in Illinois to combat the tax hike.
Flutter said it expects to mitigate 50% of the tax hike in 2025 via “locally optimised promotional and marketing spend”.
The operator added: “This is prior to second order mitigation impacts such as in-state market share gains, which we have typically observed market leaders such as FanDuel to benefit from over time when regulatory changes are introduced.”
CEO Peter Jackson said Flutter had “no plans to introduce a surcharge for winners”, although he did criticise Illinois’ new tax framework, saying it “punishes those who’ve invested the most to grow their businesses” and that it would drive players offshore or towards sweepstakes options.
PENN Entertainment said a surcharge was not something the business was considering, while Rush Street Interactive shot down the idea completely during its Q2 results call.
Richard Schwartz, CEO of Rush Street Interactive, said: “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 prioritising the needs and preferences of its players.
“We believe that RSI’s focus on customer satisfaction, coupled with its innovative rewards and loyalty programmes, sets a benchmark for excellence in the online gaming industry.”
DraftKings stock was up more than 5% in post-market trading to $31.44.