But it was the declaration that FanDuel will not add a surcharge to offset an Illinois tax hike that grabbed attention.
Earlier this month, rival DraftKings said it would introduce a surcharge on consumers in states where taxes on sports betting are highest.
“We always listen to our customers and after hearing their feedback we have decided not to move forward with the gaming tax surcharge.
Peter Jackson, CEO of FanDuel parent Flutter, said the Illinois tax hike could actually prove a competitive advantage.
It’s also captured and is defending a lead in iGaming, or online casino games, with 25% share based on gross gaming revenue.
This week, Flutter released incredible second-quarter earnings that astounded investors and sent the company’s shares up roughly 8% on Wednesday. Even in states where sports betting and online gaming are well-established, the company’s FanDuel betting platform is capturing market share and growing revenue dramatically.
Still, what made headlines was FanDuel’s announcement that it would not be tacking on a surcharge to counteract an Illinois tax hike. In states with the highest sports betting taxes, rival DraftKings announced earlier this month that it would impose a surcharge on customers.
Following the announcement of FanDuel, DraftKings’ stock dropped 5% at first during prolonged trading, and the company quickly changed its mind about taxing consumers. Over 2% gain was recently seen in DraftKings’ stock.
“We always pay attention to what our customers have to say, and after reviewing their input, we have made the decision to abandon the gaming tax surcharge. In a statement, DraftKings stated, “We are always committed to providing our devoted customers with the best value in the industry.”.
States like Illinois, New York, Pennsylvania, and Vermont, which have multiple operators and a tax rate higher than 20 percent, would have had their customer winnings subject to the nominal tax. For gaming companies with the highest adjusted gross revenue, Illinois approved a 40 percent tax rate. The tax rates on sports betting companies are 51% in both New Hampshire and New York.
Although CEO Jason Robins of DraftKings was the first to announce such a fee on users, he anticipated that other sportsbooks would follow.
Both Rush Street Interactive and Penn Entertainment, which run sportsbooks in Illinois, did not adopt the surcharge.
FanDuel announced on Tuesday that it would forgo the surcharge as well and use more regionally specific marketing and promotions to counteract the effects of high state taxes. In the latter half of 2024, the company expects a net impact of $40 million.
The Illinois tax increase may actually provide a competitive advantage, according to Peter Jackson, CEO of Flutter, the parent company of FanDuel.
On the company’s earnings call, he stated, “Smaller players may also have to increase their prices, which leads to us capturing more share, which provides an offset for us.”.
The decision by DraftKings to scrap its plans for a surcharge was applauded by gaming analysts.
In a note, Piper Sandler analyst Matt Farrell stated, “We view the decision to remove the surcharge as a positive for the story, as users were disappointed with the company’s initial decision.”.
“The reversal should remove some uncertainty around execution risks (including market share and/or reputational impact), but it also raises questions about how DKNG can offset the impact and/or whether guidance needs to be adjusted,” stated Barry Jonas, an analyst at Truist. “.
FanDuel continues to have a 47 percent U. S. based on total gaming revenue, the market share of sports betting. It has also taken the lead in iGaming, or online casino games, and is holding it with a 25% stake based on gross gaming revenue.
Because iGaming’s profits and potential growth far outweigh those of sports betting, the competition is more intense and competitive.
According to the American Gaming Association, operators reported $677 million in revenue from iGaming in just seven states during the first half of 2024. In contrast, the combined revenue from sports betting in 38 states and Washington, D.C. during the same time period was $1 billion. C.
Furthermore, if iGaming were legalized in every state that presently permits land-based casinos or sports betting, the annual gross gaming revenue, according to a new report by game developer Light and Wonder and Vixio, would be $48 billion.
Despite reports of a slowdown in spending by many other consumer-facing businesses, the gambling industry appears to be brushing off recessionary concerns.
Nine percent of adults between the ages of 18 and 34 say they spend at least $100 per month on online gambling, according to a CNBC/Generation Lab survey. A third of individuals spend over $300 per month on gaming on the internet.
On Wednesday, the exchange-traded fund that tracks sports betting, BETZ, saw a 2 percent increase, marking its third consecutive day of gains and its best day since January.
As of now, Flutter shares have increased by almost 15%, while DraftKings stock has decreased by roughly 9%.
