Rush Street Interactive, the parent company of online sports betting operator, BetRivers, announced it would not be levying a surcharge on its customers’ winning bets like DraftKings has proposed recently.
BetRivers Takes Aim at DraftKings
They say if you shoot at the king, you better not miss. And that’s precisely what Rush Street Interactive (RSI) is doing in the wake of a surprising announcement by DraftKings. The Boston-based bookmaker will be levying a surcharge on winning sports bets in high-taxed states starting in 2025. It has been reported that the jurisdictions whose DraftKings customers will see such a surcharge are high-tax states including New York, Illinois, Pennsylvania, and Vermont.
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.
Why the Increase?
It’s no secret that DraftKings, and every other top-rated sportsbook for that matter, is not fond of states with high tax rates on their profits. New York has an onerous 51% tax rate but because it is currently the largest market in the industry none of the major players will be leaving anytime soon. But that doesn’t mean they are happy with giving the state more than they make.
Other states like Illinois saw how well the industry was going in their neck of the woods and decided to raise the tax rate on sportsbooks from 15% to a graduated 20%-40%, while Ohio doubled its tax rate on revenues from 10% to 20% in a market that was barely a year old. However, according to reports, Ohio is still under DraftKings’ nebulous threshold and its users’ winning tickets will not be taxed next year.
CEO Jason Robins explained that this step is essential for DraftKings to realize positive adjusted EBITDA in 2025 and stated, “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.”
Speaking of the tax, it is reported to be approximately 3.2%, which means a winning $100 wager in high-tax states will no longer net a $100 profit for the bettor but rather $96.80. It’s not a lot but every percentage point counts if the goal is to make money on sports betting over the long haul. DraftKings is hoping the recreational bettor won’t put up a fuss and simply become accustomed to it as the cost of doing business.
Yet, DraftKings’ C-suite offices could be playing more of a long game with several possible scenarios unveiling themselves.
Earnings Call Drama
Flutter Entertainment, FanDuel’s parent company, will release its Q2 earnings in a call on August 13th. At that time Flutter could also announce that FanDuel will also levy a surcharge on winning tickets and it will only be a matter of time before the smaller sportsbooks follow suit.
Of course, there will be one or two renegades like BetRivers that will trumpet their loyalty to their customers and not impose the surcharge in an effort to acquire customers through that goodwill tour.
However, if the two titans are united in imposing a surcharge and reveal it as a “DraftKings (FanDuel) New York surcharge” on every winning ticket it may lead bettors to believe it is the state government levying these taxes. This could trigger a consumer call to action in the form of consumers calling their legislators to lower their tax rate on the sportsbooks’ revenues so the operators will eliminate their surcharge.
DraftKings goes it alone and regardless of how many ever customers they lose will be mitigated by the revenue the additional surcharges generate.
However, if FanDuel doesn’t levy the surcharge, then the plan backfires causing DraftKings to lose significant customers, revenue, and ultimately its coveted market share.
It will be interesting to see how this gambit plays out because if even a majority of the sportsbooks impose the surcharge on winning wagers it could lead to lower handles and cause bettors to flee the domestic market, seeking a better deal with the offshore sportsbooks. That scenario could be a mortal blow to the domestic sports betting market in those states and one from which they may never recover.
