DraftKings introduces customer surcharge after $1.1 billion Q2 success

Garance Limouzy August 6, 2024

SiGMA news

DraftKings has announced its intention to introduce a surcharge on customer winnings in several U.S. states. The company, which just earned $1.1 billion in Q2 and saw a 26% revenue increase, explains that this decision is a result of high tax rates.

Passing on the tax burden to bettors

In New York, Illinois, Pennsylvania, and Vermont, winning customers will have to pay a surcharge starting in January 2025. These states have in common a tax rate of over 20 percent and the presence of multiple operators. In New York, the nine licensed operators are taxed over 50 percent of gross revenue. Pennsylvania has a tax rate of 36 percent, while Illinois has a graduated structure that ranges from 20 to 40 percent. “As you know, many revenue-based taxes are passed along to the consumer. The online gaming industry has not pursued this approach in lower tax jurisdictions, but it has in higher tax jurisdictions such as Germany”, declared DraftKings CEO (pictured above). “We are planning to implement a gaming tax surcharge on a customer’s net winnings in any state with a tax rate above 20% that has multiple sports betting operators. The surcharge will be fairly nominal to the customer. DraftKings will still absorb taxes up to 20%, so customers will only be impacted above this level,” Robins added.

The best solution?

Other solutions to cope with the high taxes were judged less “transparent” by DraftKings CEO. For instance, they could have lessened the odds, explained Robins, a measure they decided against. Other short-term money-saving options included cutting back on marketing and advertising spending.

A losing bet

According to commentators, this decision is a losing bet. Passing on the tax burden to bettors has indeed angered many stakeholders. If competitors do not follow suit and implement a similar surcharge, DraftKings could lose numerous customers. Rush Street Interactive was the first operator to announce on the 5th of August that the company “has no plans” to implement a surcharge. Regulus Partners, a strategic advisory business, reacted: “To suggest this is brave is a euphemism, in our view, and the brand is already likely to be suffering damage. There is only one sensible thing for the DraftKings board to do now – publicly dump the policy, say sorry, and move on, while privately enquiring how on earth such a self-defeating policy could be publicly announced.”

Pure and utter ridiculousness. Do not let these scamming fools take your money.

They are taking bettors losses and making the bettor pay for the tax on them. That’s BLASPHEMY!!!

Don’t let this stand.
— Reverse Jinx🧪 (@REVERSEJINXPIX)

Offshore wins again.— Goon (@DrunkenGoon)

“Customers would rather pay for a strong product”

CEO Jason Robins explained: “Obviously, some people might just react negatively to the idea of being charged at all, but it’s really fairly nominal and it makes a huge difference in our ability to make a reasonable margin and, more importantly, to compete with the illegal market, which pays no taxes and has the ability to invest 100 percent of their revenue into product and other things. “It is an important step that consumers will ultimately understand,” Robins added. “If they feel the product and experience are better, then they would rather pay for that than go somewhere else that doesn’t have as strong a product.”