Raise in taxes coming

Runaway US sports betting market leaders DraftKings and FanDuel have had the wind taken out of their sails by plunging shares. It comes on the back of Illinois plans to sign-off on legislation that would significantly raise taxes on the vertical. ?

lowest closing share price since January”

After Tuesday’s trading, Forbes reported DraftKings stock dropped 11% and FanDuel’s 7%. For Boston-based DraftKings, the dip was its highest daily loss since November 2022 and on its way to its “lowest closing share price since January.”

With US operations only accounting for 40% of FanDuel parent Flutter Entertainment’s total revenue last year, the impending impact of Illinois was less. Nevertheless, the Dublin-based brand suffered its worst day on the stock market since March, and is riding a four-week low.

The Illinois Senate on Tuesday passed legislation that would significantly hike the state’s sports betting tax from its current 15%. The bills introduced a new “graduated format” that could raise taxes for sportsbooks up to 40% on their adjusted gross gambling revenues.

DraftKings left exposed

The reaction of shareholders to the proposed Illinois tax hike reflects the dashing of hopes that DraftKings was edging towards its first full-year profit after four years of major net losses.

Forbes cited JPMorgan analyst Joseph Greff as stating Illinois’ new tax rates could rise to 35% for DraftKings and FanDuel. That this is about to happen in a state that gives both brands huge earning power in the US’s third-largest sports betting market, spells a financial nightmare.

What’s compounding the anticipated loss, is DraftKings’ recent acquisition spree. Last week, it was the takeover of odds creator Sports IQ Analytics for between $50m and $70m. On Thursday, DraftKings revealed the completion of its $750m acquisition of digital lottery app Jackpocket.

Then this week came the news DraftKings was supposedly out to buy the 85% it doesn’t already own of microbetting technology company Simplebet. The price tag to make the equity DraftKings’ is between $120m and $170m.

What next

While the proposed sports betting tax hike, which forms part of the Illinois budget package, still needs passage through the House before it lands on Governor J.B. Pritzker’s desk, it seems a done deal. Hence the stock market’s reaction.

According to the Illinois Gaming Board, DraftKings and FanDuel essentially own the state’s sports betting market via handling 90% of Illinois’ online sports betting action from January through April. ESPNBet and Fanatics SportsBook, however, have made in-roads into the market, which gives the projections of Needham & Co. equity analyst Bernie McTernan added weight.

fears of higher tax rates broadly to be more of a concern for investors.”

McTernan stated Illinois’ new tax proposal is “more beneficial for smaller operators” such as ESPN. As for the long-term game plan in Illinois for DraftKings and FanDuel, the analyst added: “We expect fears of higher tax rates broadly to be more of a concern for investors.”