Last updated: August 14, 2024
DraftKings CEO Jason Robins announced plans to introduce a nominal surcharge on players’ net winnings in states with betting taxes above 20%, such as Illinois, Pennsylvania, New York, and Vermont. The decision aims to offset high tax rates and compete with illegal markets. The surcharge, clearly displayed on betting slips, is set to be implemented in 2026.
Draft Kings CEO Jason Robins announced that the company would only impose a marginal tax on players’ gross winnings in specific United States.
Such a move is part of measures to counter the high tax required on sports betting in these areas and effectively capture the market from operators in the black market. The surcharge will impact the players who use taxes higher than 20%, such as Illinois, Pennsylvania, New York, and Vermont.
To head this, Robins affirmed that there are times when consumers will not be happy to be charged anything more. But he stated that the surcharge is truly small and must be levied to help keep DraftKings break-even or moderately profitable. As he put it, ‘it does help a lot in our capacity to make a reasonable margin’.
Aldi believes that introducing the surcharge is a strategic way to maintain the company’s competitiveness, particularly given that some states have rather high tax amounts.
For example, New York takes 51% of the amount staked on sports bets, while in Pennsylvania, the rate is 36%. Robins identifies these high rates to justify a reconsideration of DraftKings’ business strategies within these locations.
Still, DraftKings needs to make people aware of the new charge; therefore, it should not be too disguised. The surcharge will be printed on the betting slip and subsequently next to the settled bet.
The surcharge is expected to be introduced in 2026 by the company, and it has not been in a hurry to introduce it, possibly waiting for supportive legislation in jurisdictions like New York.
Although the new has been accepted and welcomed by some investors, observers, and consumers while being criticized by others, DraftKings believes that the new move will encourage better odds for the players and better competition. The management of the company is sure that, in the long run, their client base will accept this change.
To the questions that arise from the threats presented by the illegal gambling sector, DraftKings’ CEO, Jason Robins, has pointed out the necessity to rethink the business strategy in states with high betting taxes.
According to Robins’ account, making odds competitive and improving customer experience entails a change of strategy, especially in places where the betting tax is more than twenty percent.
Appealing to consumers, Robins noted at the Q2 earnings call that normally the gambling industry does not charge its clients on the revenues being taxed, and, while some of them formidably refuse such pass-through, high taxes affecting the business are those of New York City at 51% on the sports bets, and that of Pennsylvanian at 36%.
He also expounded his stand on the introduction of surcharges on net winnings in those states as a very admittable stance for consumers to undertake this activity. This surcharge is designed for DraftKings to continue generating a profit despite the competitive environments within which it operates.
However, in the same month, the management of DraftKings indicated that the company would apply a surcharge on net winnings in the markets with high betting taxes, although it quickly clarified that such actions would not be taken in the future.
Nonetheless, DraftKings intends to include information about the surcharge on the betting slips and the bet settlement in the event of a bet settlement to minimize the worries among its users.
It intends to counter high tax rates to be effective from the company’s financial year starting in April 2026 and keep the firm competitive, including with illicit gambling platforms.
However, taking into consideration the investors’ and observers’ evaluations and consumers’ reactions, DraftKings stands firm in the decision. The company believes the surcharge could increase the chances of the player, which, however, has yet to be proven.
It is also expected to wait for some legislative shifts in places like New York, where the tax rate is pegged at 51% on sports bets, or Pennsylvania, where the tax rate is 36%. It may allow these legislative changes to pass and assess the market reactions.
