However, after facing considerable backlash from customers and watching FanDuel take a different approach, DraftKings decided to scrap the surcharge entirely — a backpedal that underscores the challenges and intricacies of navigating the sports betting landscape in states with steep taxes.
DraftKings’ Original Plan
DraftKings’ original plan was unveiled during its earnings report, where the company outlined a “gaming tax surcharge” that would have applied to customer winnings in states with tax rates exceeding 20 percent, such as Illinois, New York, Pennsylvania, and Vermont. The Illinois market, in particular, saw its tax rate escalate to as high as 40% for the largest operators, creating a challenging environment for sportsbooks.
DraftKings IL planned to implement the surcharge starting in January 2025, with the intention of offsetting some of these heightened costs. The surcharge was to be applied after the bet was placed, with an illustrative example showing a $10 bet at +100 odds resulting in a $0.32 surcharge, reducing the payout slightly.
DraftKings believed this would help manage their costs, particularly as their EBITDA (earnings before interest, taxes, depreciation, and amortization) guidance had already been lowered due to rising operational expenses.
However, the announcement of the surcharge was met with swift criticism from bettors, who saw it as an unnecessary burden on their potential winnings. Social media buzzed with negative feedback, as customers expressed frustration over what they viewed as an additional cost in an already expensive hobby.
Many wondered why DraftKings would even consider such a move, especially when no other major sportsbook had introduced a similar fee. The backlash from customers also raised concerns among analysts who feared the surcharge could negatively impact DraftKings’ market share and reputation.
FanDuel Capitalizes on DraftKings Slip
While DraftKings was grappling with customer dissatisfaction, FanDuel, operated by Flutter Entertainment, capitalized on the situation. FanDuel IL announced that it would not impose any similar surcharge; instead, it chose to absorb the tax costs through other means, such as more targeted local promotions and marketing strategies.
Peter Jackson, CEO of Flutter emphasized that avoiding the surcharge could be a competitive advantage, particularly as smaller operators might struggle to manage the high taxes.
“We think this is the best customer option and have no plans to introduce a surcharge for winners,” Jackson stated, positioning FanDuel as the more customer-friendly option in the high-tax states.
Faced with the reality of customer dissatisfaction and a rival gaining the upper hand, DraftKings quickly reversed its decision.
“We always listen to our customers, and after hearing their feedback, we have decided not to move forward with the gaming tax surcharge,” the company said in a statement.
This move was met with relief and approval from bettors, who took to social media to praise the decision. Analysts, too, viewed the reversal as a positive step, noting that it removed some of the uncertainty around DraftKings’ ability to compete effectively in these challenging markets.
