Controversial move

DraftKings has stirred up controversy in the sports betting community by revealing a new surcharge on winnings in states where it pays relatively high taxes on revenue. The Boston-based operator announced this first-of-its-kind fee while releasing its second quarter financial results on Thursday.

states with multiple operators and a tax rate higher than 20%

Customers in states with multiple operators and a tax rate higher than 20% will have to pay a cut of their net winnings as a surcharge. DraftKings did not define the size of the surcharge, which will take effect at the start of 2025, and said that it would vary depending on the state. The letter to shareholders said that the fee will “be fairly nominal to the customer.”

Using Pennsylvania as an example, it said the rate would be a “low to mid-single digit percentage.”

Combating high tax regimes

Four states currently have tax rates of more than 20% and therefore will be the locations where DraftKings will charge the additional levy. New York has the highest rate of 51%, followed by Illinois, which recently increased its rate to 40%, Pennsylvania at 36%, and Vermont at 33%.

Other states are considering making a similar change to Illinois to try to boost tax revenue for their legal sports betting markets. DraftKings has expressed concern about the road to profitability when it has to pay these high tax rates.

A solid quarter

Despite announcing its first-ever profitable quarter at $63.8m, DraftKings’ share price slid almost 4% on the back of the news about the surcharge. It also announced a stock buyback plan potentially worth $1bn in an attempt to show confidence in its future outlook.

the monthly average users were 3.1 million, a 48% year-on-year rise

Revenue for Q2 reached $1.1bn and monthly average users were 3.1 million, a 48% year-on-year rise, while average monthly revenue per user dropped 15% to $117 compared to the same period in 2023. Sales and marketing costs jumped in the second quarter to $215m.

DraftKings CEO Jason Robins welcomed the results, saying that they highlight strong customer acquisition and retention.