Flutter warns of black market and sweepstakes growth in Illinois due to tax hike

Flutter Entertainment CEO Peter Jackson has highlighted his concerns that the new sliding tax scale in Illinois could result in a boost to the black market and “unregulated” sweepstake operators.

Speaking on an analyst call following the FanDuel parent company’s Q2 report, Jackson slammed the Prairie State’s new tax regime which will see FanDuel and its closest rival DraftKings subject to the top 40% tax bracket.

The new scale, introduced on July 1, saw the flat 15% rate abolished in favor of a sliding scale based on operators’ annual GGR, ranging from 20% to 40% in tax.

In an attempt to combat the tax hike, DraftKings had planned to implement a gaming tax surcharge on player winnings to bring its effective tax rate down to 20%.

However, after Flutter revealed it would not be following suit, DraftKings announced that after reviewing customer feedback it would no longer be pursuing the policy.

As part of its Q2 report, Flutter said it expects to mitigate 50% of the costs from the tax hike in Illinois via “locally optimized promotional and marketing spend.”

Flutter 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.”

Jackson argued that tax rates should sit at a “happy medium” to ensure a conducive and successful market and highlighted the dangers of customers leaking to the black market of sweepstake operators.

He also noted the operator’s global experience of high tax markets means it will be well placed to deal with the hike in Illinois from 15% of GGR to 40%.

The CEO said: “It’s important to recognize that there’s a happy medium for tax rates that enables operators to maximize market growth, provides the best experience for customers, and over time, maximizes revenue for states.

“Most states have taken a sensible approach to date. I do think that instituting a graduated tax system that punishes those who have invested the most to grow their businesses is wrong.

“I think it will drive customers to offshore operators or potentially to onshore operators that are operating unregulated and untaxed prop parlays under the guise of sweepstakes.

“We have lots of patent recognition of operating internationally in high tax locations. Our experience is that moderating levels of generosity or indeed reducing local marketing is the best response,” he added.

Jackson went on to note that smaller operators in Illinois could concede market share to FanDuel as they come to terms with their own new tax bracket.

However, Rush Street Interactive was adamant it would not implement a gaming tax surcharge as DraftKings had planned to do as a means of dealing with the increased tax pressure.

Jackson said: “We often find smaller players may also have to increase their prices, which leads to us capturing more share.

“We try and spend as much time as we can in educating and showing our experiences with state bodies to ensure that they can achieve the best outcomes for themselves and the customers.”