DraftKings (NASDAQ: DKNG) recently announced that a new surcharge on winning sports bets in four states could bring in as much as $270 million in additional gross gaming revenue.
Last week, the gaming company revealed plans to impose a small fee on winning sports wagers in Illinois, New York, Pennsylvania, and Vermont. This move aims to reduce the company’s effective tax rate in these high-tax states and is set to take effect on January 1, 2025. DraftKings informed investors that the surcharge could positively impact its 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA). However, the company’s EBITDA projection of $900 million to $1 billion for next year does not factor in potential gains from the surcharge.
EKG’s estimate of $270 million does not account for the potential loss of bettors due to the surcharge. Nevertheless, if the forecast is accurate, it could boost DraftKings’ gross gaming revenue (GGR) market share by 150 basis points, bringing it to 34%.
FanDuel’s Response Could Be Crucial
Following DraftKings’ announcement, Rush Street Interactive (NYSE: RSI) stated that it will not implement a similar surcharge, while Penn Entertainment (NASDAQ: PENN), the parent company of ESPN Bet, said it is closely monitoring the situation. Prior to this news, BetMGM and Caesars Entertainment (NASDAQ: CZR) had provided financial updates, with neither indicating plans to introduce a comparable fee.
Surcharge Risks for DraftKings
Since announcing the surcharge, DraftKings has faced considerable backlash on sports betting social media, with many bettors and industry commentators criticizing the move as an attempt to pass some of the operator’s tax obligations in Illinois, New York, Pennsylvania, and Vermont onto its customers.
“At first glance, we believe the risks—such as player attrition, reputational damage, and states rejecting the notion that surcharge revenue is tax-free—seem to outweigh the potential rewards of increased profits,” EKG concluded.
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