DraftKings May Reap $270M from Surcharge if Gamble Succeeds
Yet, this may not be the only consideration that has played in DraftKingsâ recent decision to apply a surcharge that is designed to help the company compete against the black market and offer better odds back to its customers.
DraftKings Primed to Reap Benefits of Surcharge â Maybe
It doesnât hurt that the surcharge, to be rolled out across four states, is estimated to add $270 million according to Eilers & Krejcik Gaming, an analytics firm.
The company is planning to introduce the new tax on January 1, 2025, and has already faced backlash from players, along with rival companies who have simply said somewhat pointedly that they would not apply a surcharge.
Yet, DraftKings CEO Jason Robins may be looking at the market realities on the ground, and although a hard sell, his company is sticking with the unpopular measure for now. Outlining the surcharge expected to be collected, Eilers & Krejcik Gaming noted that the windfall from Pennsylvania could hit $9 million and that from New York should come at $209 million.
A total of $270 million will be raised by the company this way, the analytics firm estimates, with DraftKings hoping to offset the mounting costs of running businesses in high-tax states. In honesty, the 51% gross gaming revenue tax on sports betting in New York is indeed exorbitant.
Yet, it seems that DraftKings can ill-afford to leave New York and other stingy jurisdictions as it would leave competitors clawing share unchallenged. In the long term, DraftKings may indeed be able to leverage its position and offer better odds â consumers may grumble about taxes, but those sentiments are surprisingly short-lived.
In other words, the cheap shots rival companies are taking at DraftKings may all be well, but if the sports betting company retains its position and minimizes the impact of the gutting tax rates, they may suddenly find themselves left behind â or even consider a similar measure.
Not everyone is gleeful about the blowback that DraftKings is suffering, mostly limited to social media. For example, Rush Street Interactive may have been quick to poke fun at the rival, but ESPN Bet, which is already struggling to generate the expected results it had hoped for, said that it would âmonitor the situation.â
Other Gambling Companies Holding Their Breath for Now
BetMGM and Caesars have mostly kept mum, and Penn Entertainment seems to be following a path similar to the one chosen by ESPN Bet. The biggest wildcard in the equation is FanDuel, which could explore a similar surcharge, which could keep the market on an equal footing, and set a new standard.
The consideration may not be âgreedyâ or âfinancial,â but rather strategic If DraftKingsâ move works out, and the company has enough money to offer better odds, this may leave FanDuel and others the worse off for it. Itâs another matter of whether sharp bettors will feel the same. For example, they may simply calculate that the odds are pretty much the same (when you factor in the surcharge).
Eilers & Kreijick Gaming, though, has a different opinion. âIf FanDuel does not follow suit, and if states chafe at the potential for lost tax revenue, we believe DraftKings management will face considerable pressure from policymakers, investors, and media to drop the idea,â the company argued.
The real test for DraftKings will be whether this decision results in real player attrition and whether players ride the exit wave, putting DraftKings in a tighter spot than the company had hoped for.
