DraftKings Plan on Introducing Tax Surcharge

Tax is a keyword when it comes to the US gambling industry. It’s not a popular word of course and a recent statement by DraftKings has caused quite a lot of discussion.

Early August saw the gambling company make an announcement on the subject of taxation. They stated that in US states where the gambling tax rate is above 20%, they will also tax those who win bets, according to offers.bet, sportsbook offers comparison site.

As you might expect, it’s a statement that has caused a great deal of discussion in the US gambling industry. Richard Schwartz is the CEO of Rush Interactive and he says his company has no intention of going down this route.

Over at Penn Interactive, they have described the comments as both “interesting” and “unexpected” by their CEO Jay Snowden during an earnings call. While they do not have any plans to tax winners in the coming months, the possibility of doing so in the future hasn’t been ruled out.

The plan is for DraftKings to begin imposing their surcharge from the first day of 2025. It would certainly affect those who use the legal US gambling industry. Currently, in terms of market share, DraftKings are the second biggest US operator behind FanDuel. The market leaders have refused to make a comment on this issue.

On introduction, the ‘gaming tax surcharge’ will be introduced in four US states. These would be New York, Illinois, Vermont and Pennsylvania.

The charge would be taken off the amount due to the customer from any winning bet. For example, a player who stakes $10 and wins $10 at odds of +100 would be charged a total of $0.32. That might not sound a huge figure but over time it would mount up in the long-run.

In the UK, there is no tax that is paid on bets or winnings by gamblers. In the past though, there was a tax that could be paid either on the initial stake of a bet or if not paid, on the return that was due. 

How would the charge affect DraftKings in a state such as Colorado where business is booming? Their hope is that customer loyalty is high and there wouldn’t be a huge exodus to other companies who didn’t make such a charge. If that was the case, then other US gambling companies could decide it’s worth the risk to introduce a similar charge to their own customers.

One fear is that those who have to pay the surcharge may opt to leave the licensed and regulated US gambling industry. There are already concerns over the revenue that is being lost to the unlicensed side of the industry. 

There has already been some unrest among customers after the announcement of the plans. Some have gone onto X and stated they won’t gamble with DraftKings once the surcharge is introduced.

A report by Yield Spec has shown that the gross gaming revenue (GGR) of such companies has been $29.1 billion for the first six months of this year. That’s revenue which could be being earned by the licensed and regulated section of the industry.

Of those states, New York, Illinois and Pennsylvania are among the highest-grossing markets for DraftKings. In New York, the tax rate that operators have to pay on net wins is 51%. That’s the highest rate in the US.

The tax rate in Illinois varies between 20% and 40% of operator winnings. The amount that has to be paid is dependent on the total amount each individual sportsbook earns. Winning mobile bets in Pennsylvania are subject to a tax rate of 36%  As for Vermont, DraftKings currently pays 31% of its winnings in tax. 

Customers will know exactly what surcharge they are having to pay. The total amount of tax deducted from winnings will be shown on their bet receipt. This ensures that although the move may not be a popular one, there is at least some transparency being shown. DraftKings say that the introduction of the tax will “integrate seamlessly” into their existing app.

DraftKings have also announced that their projected adjusted earnings before interest, taxes, depreciation and amortization (AEBITDA) for the 2024 fiscal year has been downgraded from midpoint $500 million to $380m. For the 2025 financial year, their AEBITDA projection is $900 million to $1 billion.

The rise would be due to the introduction of the gaming tax at the start of the year. Seeing that increase while players have to pay tax on their winnings might not make DraftKings too popular.