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Mobile betting powerhouse DraftKings is planning a tax on consumers in states with the highest sports betting tax rates, as the company looks to boost profit.
The company announced Thursday that starting next year, it will implement a gaming surcharge on winning bets in states with multiple betting operators and where the tax rate is above 20%. That includes Illinois, New York, Pennsylvania and Vermont.
“We decided that the best course of action is to do what really every other industry [does] — whether it’s hotels, taxis — whatever else you buy generally has some kind of tax,” DraftKings CEO and co-founder Jason Robins told CNBC.
The announcement came as the sports betting operator released its second-quarter earnings, which marked the company’s first-ever profitable quarter as a public company. DraftKings reported revenue of $1.1 billion, roughly in line with consensus estimates, according to LSEG.
Fears of tax hikes in gaming pressured DraftKings stock and other betting companies such as FanDuel back in May, when Illinois approved a tax hike on sports betting revenue. The sliding tax rates impose 40% levies on companies with the largest adjusted gross revenue. New York and New Hampshire each maintain 51% tax rates on sports betting companies.
In a letter to shareholders Thursday, Robins said the new surcharge will be nominal for the customer. In Illinois, for example, it will amount to a low- to mid-single-digit percentage of net winnings.
“If you made a $10 bet to win $20, you would pay like 30 cents,” Robins said, citing an example.
An illustration of the DraftKings app, introducing a new gaming surcharge.
DraftKings
DraftKings is believed to be the first U.S. operator to implement a tax on the winnings of a bettor. Robins said he weighed it heavily and hopes it causes states to think twice about the tax rate.
“I do think that if states start to realize that above a certain level, we can’t invest in our product and customer experience in the way that we need to … it might make them think differently about it,” he added.
He is also considering customers’ response. “We’re not going to hide it,” Robins said. “Obviously, we could see some customers drop off, and player betting activity, if they don’t like it.”
Robins says DraftKings is not including the new tax in its guidance.
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