DraftKings is wagering that bettors won’t mind sharing its tax burden.
During Friday’s 2Q24 earnings call, DraftKings CEO and Co-founder Jason Robins said that the company will levy a surcharge on all bets in states where online sports betting is taxed at rates of more than 20%.
In doing so, DraftKings may have opened the gates for other companies to do the same.
“I think every company has to do what is best for their own business,” Robins said. “I think we believe this is best for us and I would imagine that if that’s our calculus, others will come to the same conclusion. We don’t know. We’ll have to see.
“Obviously, there might be other ways to do this too, other ideas for how to implement something like this that might be better than what we’ve come up with. We thought this through quite a bit, but you never know.”
DraftKings reported revenue of $1.104 billion for the quarter, an increase of $230.0 million year-over-year.
The Illinois State Senate decided to increase taxes on OSB earlier this year. Gross revenues would be taxed at the following rates: $0 to $30 million at 20 percent; up to $50 million at 25 percent; $50 million to $100 million 30 percent; $100 million-plus to $200 million 35 percent; and 40 percent on all revenue exceeding $200 million a year.
Robins says such rates are untenable, and that the only solution was to levy a surcharge on bettors.
“Obviously, some people might just react negatively to the idea of being charged at all, but it’s really very nominal, and it makes a huge difference in our ability to make a reasonable margin,” Robin said. “And also, more importantly, to compete with the illegal market, as you know, that has the ability to invest 100% of their revenue into product and other things. So, for us to be able to be competitive with the illegal market and invest properly in a customer experience in a space that has a very high tax rate, we feel it’s an important step that consumers will ultimately understand. If they feel the product experience is better, that they’d rather pay for that somewhere else, then maybe we don’t have a strong product.”
Robins said the model that DraftKings is using is no different than other jurisdiction or businesses use to pass along costs to customers.
“There are other places where online game companies charge customers more because of the tax regime,” Robins said. “Countries like Germany or Australia as an example. It’s not done exactly in this way, but it’s very similar. … But a number of industries, from taxis to hotels, all have taxes. It’s very insane they get charged. People may gripe about it, but don’t really see behavior change because of it.”
Robins noted that the market remains strong for OSB. During the second quarter, DraftKings saw an increase of monthly unique players to 3.1 million, a statistic that will increase with the upcoming football season.
He added that it was important to DraftKings to be upfront what they are doing “versus trying to obfuscate it, which also isn’t consistent with our commitment to be transparent to our customers and be very customer friendly in everything we do,” Robins said. “I know there’s a benefit to hiding it because people don’t notice. But I think over the long term, customers appreciate transparency, even if they don’t love it. They’re seeing implemented a high tax, and some of that is being passed along. I think they prefer that than not knowing, if there was variation in the pricing or something else.
