DraftKings has laid down its sword and is no longer threatening to impose a surcharge on winning bets in high-tax states after FanDuel announced a similar surcharge was not in its future.
Rattling the Sabre
DraftKings CEO, Jason Robins, has long railed against states with onerous tax rates, namely New York at 51%, and decided to do something about it. In a highly controversial strategy to mitigate excessive tax rates, the Boston-based bookmaker announced its implantation of a 3.2% surcharge on winning bets in high-tax states including New York, Illinois, Pennsylvania, and Vermont.
Robins attempted to explain it away as a necessary evil against greedy state legislatures that refused to understand the economics of running a mobile sportsbook and how it can diminish its marketing and promotional budgets designed to attract more bettors into the fold. Robins asserted that the quality of DraftKings product would be enough of a pull to keep the vast majority of its customers from seeking alternative sources.
“Obviously, some people might just react negatively to the idea of being charged at all,” DraftKings CEO Jason Robins said. “We feel it is an important step that consumers will ultimately understand if they feel the product and experience is better, then they’d rather pay for that than somewhere else that maybe doesn’t have as strong a product.”
End of an Error
DraftKings endgame for the surcharge was to cause an uproar with the betting public, who would presumably lay blame at their legislators in those high-tax states for instituting such onerous taxes on their beloved sportsbooks that it forced them to take corrective action at the bettors’ expense.
DraftKings knew it could not chart this treacherous course alone and was counting on the support of its archrival and industry leader, FanDuel, to follow suit. However, before FanDuel’s parent company, Flutter Entertainment, could address the issues, smaller sports betting platforms like BetRivers denounced the increase almost immediately.
Rush Street Interactive CEO Richard Schwartz released a statement saying, “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 prioritizing the needs and preferences of its players.”
Following that, Flutter Entertainment’s CEO Peter Jackson announced during an earnings call earlier this week: “We think that moderating levels of generosity or reducing local marketing is the best customer option. We have no plans to introduce a surcharge for winners.”
That was the death knell for DraftKings’ surcharge gambit, as it wasn’t long afterwards that the Boston-based bookmaker had reconsidered.
DraftKings said in a statement last Tuesday:
DraftKings Statement on Gaming Tax Surcharge pic.twitter.com/cucbsQJIVD
— DraftKings News (@DraftKingsNews) August 13, 2024
The Larger Implications
The surcharge controversy may have ended as quickly as it began, but the overarching concern is what the lack of bonuses, promotions, and more generous odds in high-tax states are doing to its customer base. Sportsbooks operate in unique environments in which low-tax states will allow them the latitude to offer higher signup bonuses and more generous promotions to their customers than they can in high-tax states.
Odds can also be adversely affected in the higher tax areas to mitigate the expense of the tax on revenues sportsbooks must pay. All of these factors can have a direct correlation on sports bettors seeking other means of betting, like the offshore market, which still controls a large portion of America’s sports betting dollars as they do not pay taxes to state and local jurisdictions, nor are they governed by regulators with stringent standards.
As long as sports betting revenue continues to flow into New York’s tax coffers, it is unlikely legislators will make a move to lower those rates anytime soon.
