DraftKings scraps betting surcharge plan in high-tax states

DraftKings (DKNG) is scrapping its plans for a betting surcharge on winning bets in high-tax states after Flutter Entertainment (FLUT) — the parent company of sports betting rival FanDuel — rejected the idea during its earnings call Tuesday. Flutter's stock is jumping in Wednesday's session after beating second quarter earnings estimates.

Market Domination Hosts Julie Hyman and Josh Schafer report more on the story and the tax policies on bets placed in different states across the US.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl

Video Transcript

Draftkings scrapping its plan for a betting surcharge on winning bets in high tax states.

This coming after Fanduel parent company and draft Kings, biggest rival Flooder Entertainment rejected the idea on its earnings call yesterday.

This is a big story in the gambling space over the last couple of weeks, some states are rising, raising the taxes that these companies are gonna have to pay.

Draftkings came out and said, ok, if Illinois is gonna raise state taxes, we're gonna put some of that on the consumer and people that are winning.

A lot of bets are going to pay more in taxes on their winnings.

That is not an industry standard.

People who are not very happy about Draft King saying that and then Flutter essentially coming out and saying we're not joining you in this party.

And I think with them being the two biggest players in the space.

If flutter isn't on board with it, Draftkings kind of can't afford to go ahead and do it because it's pretty to just switch these accounts, move some money over and start betting on fanduel instead of betting on drafting.

Yeah, and Flood are coming from a position of strength because they just announced earnings that beat estimates.

They raised their full year forecast.

They've been seeing big, big growth in draftkings home market of the United States.

I was looking at some of the numbers here, 42% of their revenue last quarter was from the US flutters.

That is which is the owner Fanduel and it rose 39% versus a 20% gain in their uh revenue overall.

So, in other words, revenue in the US as they grow in this market is growing at double the rate of their overall revenue.

And so when your biggest competitor comes out and says, we're not gonna do that and they're growing like that, you can't afford to, you can't charge your customers for the taxes overall is gonna be interesting to see how it develops because the state can decide that right, when New York owes and they came out with around a 50% tax on revenues.

Some companies didn't even want to get into New York initially because it's so high and the margins are tight in gambling.

So they didn't want to get into it.

So it's going to be interesting to see as more states come online.

You still have massive states that long term gambling bowls hope a state like Texas gets involved.

Right.

Well, what if Texas gets involved and, or California gets involved and they're at the 40 to 50% the margins start to get a little bit harder for these gambling companies.

I mean, it got to the point where Draftkings basically said we want to pass it on to the consumer, which is when, you know that they feel that they're getting a little bit of pressure there.

Yeah.

Well, it'll be interesting to watch the margins then going forward for sure.