Flutter reported phenomenal second-quarter earnings this week that thrilled investors and sent shares up about 8% on Wednesday as the company’s betting platform FanDuel gains market share and dramatically increases revenue, even in states where sports betting and online gaming are well established.
But it was the statement that FanDuel will not impose a surcharge to offset a tax increase in Illinois that caused a stir. Earlier this month, the competitor DraftKings said that a surcharge for consumers would be introduced in states where sports betting taxes are highest.
DraftKings shares initially fell 5% in extended trading following FanDuel’s release, and the company changed its approach to taxing its customers shortly thereafter. DraftKings stock was last up more than 2%.
“We always listen to our customers and after hearing their feedback, we have decided not to move forward with the gaming tax surcharge. We always strive to provide the best value in the industry to our loyal customers,” DraftKings said in a statement.
The nominal tax would have been applicable to customer winnings in multi-operator states that have a tax rate above 20%, including Illinois, New York, Pennsylvania and Vermont. Illinois approved a 40% tax rate for gaming companies with the highest adjusted gross revenue. New York and New Hampshire each maintain a 51% tax rate for sports betting companies.
DraftKings was the first to impose such a fee on its users, but CEO Jason Robins predicted that other sportsbooks would follow suit.
Neither Penn Entertainment still Rush Street Interactivewhich both operate sports betting offices in Illinois, followed suit in imposing the surcharge.
FanDuel said Tuesday that it would also forgo the surcharge and instead offset the impact of high state taxes through more locally tailored marketing and advertising efforts. The company expects a net impact of $40 million in the second half of 2024.
Peter Jackson, CEO of Flutter, FanDuel’s parent company, said the tax increase in Illinois could actually prove to be a competitive advantage.
“Smaller players may also have to raise their prices, which will result in us gaining more market share, which will give us some balance,” he said at the company’s earnings call.
Gaming analysts praised DraftKings’ decision to abandon its plans for a surcharge.
“We view the decision to eliminate the surcharge as a positive for the story, as users were disappointed with the company’s original decision,” Piper Sandler analyst Matt Farrell wrote in a note.
Truist analyst Barry Jonas said: “The turnaround should remove some uncertainty around execution risks (including impacts on market share and/or reputation), but also raises questions about how DKNG can offset the impact and/or whether guidance needs to be adjusted.”
FanDuel holds a 47% market share in sports betting in the US based on gross gaming revenue. The company also has a lead in iGaming, or online casino games, and defends this with a 25% share based on gross gaming revenue.
Competition is getting tougher and tougher in iGaming as profits and future growth far outshine sports betting.
According to the American Gaming Association, operators reported $677 million in revenue from iGaming in just seven states where it is legal during the first five months of 2024. For comparison, sports betting revenue totaled $1 billion during the same period in 38 states and Washington, DC.
And a new report from game makers Light & Wonder and Vixio estimates annual gross gaming revenue of $48 billion if every state that currently allows land-based casinos or sports betting allowed iGaming.
The gaming industry seems to be ignoring recession concerns, even as many other consumer-dependent companies report a decline in spending.
According to a CNBC/Generation Lab survey, 9% of 18- to 34-year-olds spend at least $100 a month on online gambling, with three percent of respondents spending more than $300 a month on online gaming.
The exchange-traded fund for sports betting, BETZrose 3.5% on Wednesday, its third consecutive daily gain and its best day since January.
DraftKings shares have fallen about 9% since the beginning of the year, while Flutter shares have risen nearly 15%.
