DraftKings quickly abandoned a controversial plan to apply surcharges on winning sports bets in select high-tax states, a move that spared the company from facing backlash from New York regulators.
New York, which has the highest sports betting tax rate in the U.S., alongside states like Illinois, Pennsylvania, and Vermont, was a key target of DraftKings’ proposal to impose small levies on winning bets. The plan was immediately met with criticism, with customers accusing DraftKings of passing its tax burden onto bettors. This sentiment was echoed by New York State Gaming Commission Chair Brian O’Dwyer, who expressed strong disapproval.
“I view that proposal as both misleading and detrimental to the consumer,” O’Dwyer remarked during the commission’s Monday meeting. He expressed relief at the plan’s withdrawal, reminding licensees that any such proposals would face intense scrutiny from the commission, and could be rejected outright. New York currently imposes a 51% tax rate on online sports wagering.
DraftKings Quickly Shelves Surcharge Idea
DraftKings introduced the surcharge plan as part of its second-quarter financial report on August 1. However, it faced immediate backlash as competitors, including BetMGM and Caesars Sportsbook, made no mention of similar strategies. Rival Rush Street Interactive publicly distanced itself from the idea on August 5, and the final blow came on August 13 when FanDuel’s parent company, Flutter Entertainment, reported it would not implement surcharges.
In response, DraftKings swiftly announced it was scrapping the surcharge plan in the four targeted states, citing customer feedback. New York, the largest state with a competitive online sports betting market, saw no need to adjust its tax system to accommodate operators. O’Dwyer emphasized that New York remains a prime destination for sports betting, saying, “I see no reason why we should alter our present regulatory or taxing environment.”
Operators Struggle with High Tax Burdens
High sports betting taxes are an unavoidable reality in states like Illinois, New York, and Pennsylvania, which are crucial markets for gaming companies. As a result, operators are seeking ways to navigate these costs while maintaining profitability.
FanDuel, for example, plans to reduce promotional spending in Illinois, where a new graduated tax system has been introduced for online sports betting. This structure increases taxes for high-revenue companies like FanDuel and DraftKings.
During Bank of America’s Gaming and Lodging Conference earlier this month, DraftKings CEO Jason Robins discussed the challenges of dealing with rising taxes, noting that it’s unreasonable for companies to absorb every tax increase without making adjustments.
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