Illinois, New York, Pennsylvania, and Vermont bettors may still see less-generous betting markets because of a high tax on sports betting profits in their states.
But they won’t see an itemized surcharge. For now.
Tuesday was the day the high-tax state surcharge died at the nation’s largest operators: FanDuel Sportsbook and DraftKings.
FanDuel’s parent company, Flutter Entertainment, held a quarterly earnings call on Tuesday, Aug. 13. Investors asked CEO Peter Jackson if FanDuel would add a fee in the four states that exceed 20% taxation on sports betting revenue.
“We have no plans to introduce a surcharge to winners,” he said.
Within an hour of the Flutter call, DraftKings Sportsbook reversed its plan to add a surcharge to sports betting wins in Illinois, New York, Pennsylvania, and Vermont. The fee on betslips was supposed to begin on Jan. 1, 2025.
High Tax Rates Still Rankle Sportsbook Operators
Jackson, the FanDuel CEO, was candid about his company’s philosophy. He thinks high tax rates in the four northern states will drive out FanDuel’s smaller competitors. The gained market share for FanDuel can then offset some of the higher tax payments in each location, he told investors.
Illinois, however, handicaps the most successful betting operators.
The state replaced its 15% tax rate with a graduated tax rate starting July 1:
- 25% for operators that make less than $50 million in revenue
- 30% for sportsbooks that exceed $50 million but stay under $100 million in revenue
- 35% from $100 million to $200 million
- 40% for operators who clear more than $200 million in revenue
The Flutter CEO called the Illinois graduated tax system “wrong.” He feels it “punishes those who have invested” the most.
“We do operate in a lot of different markets in the world,” he said during the earnings call. “We can see plenty of examples where the tax rate was bumped up, and the payout to the state declined.”
Ultimately, Jackson said climbing tax rates will drive customers to offshore markets, or US sites “offering unregulated and untaxed prop parlays under the guise of ‘sweepstakes.'”
“I think it is important to recognize that there is a happy medium for tax rates that enables operators to maximize market growth, provides the best experience for customers, and, over time, maximizes revenue for states,” he said. “Most states have taken a sensible approach.”
Other Sports Betting Operators Nix Surcharge Concept
Rush Street Interactive — the company behind BetRivers Sportsbook, PlaySugarhouse, and RushBet — won’t pass along a high-tax surcharge to winning bettors.
“As we put our customers first, it was an easy decision for us,” CEO Richard Schwartz said in an Aug. 5 statement.
Penn Entertainment is the company behind ESPN Bet. Its CEO, Jay Snowden, found DraftKings’ surcharge concept “definitely interesting” and “unexpected.”
“We have a lot going on in front of us right now over the coming quarters,” Snowden said during his own earnings call. “So I would say — when you’re talking about a potential tax surcharge in early ’25 — it’s not even on our radar.”
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