Flutter The company surprised investors this week by reporting impressive second-quarter earnings, sending its shares up about 8% on Wednesday as its FanDuel betting platform gained market share and dramatically grew revenue, even in states where sports betting and online gaming are well established.
But what caught attention was FanDuel’s declaration that it would not charge a surcharge to offset Illinois’ tax hike. Earlier this month, rival DraftKings He said he would introduce a surcharge for consumers in states with the highest taxes on sports betting.
DraftKings shares initially fell 5% in extended trading following FanDuel’s announcement, but the company soon reversed course on its tax policies for customers. DraftKings shares ultimately rose more than 2%.
“We always listen to our customers and after hearing that feedback, we have decided not to move forward with any additional gambling taxes. We have always been committed to providing the best value in the industry to our loyal customers,” DraftKings said in a statement.
The nominal tax would have been applied to customer winnings in states with multiple gambling operators that have tax rates above 20% — including Illinois, New York, Pennsylvania and Vermont. Illinois approved a 40% tax rate on gambling companies with the highest adjusted gross receipts. New York and New Hampshire each maintain a 51% tax rate on sports betting companies.
DraftKings is the first operator to announce it will charge users such a fee, but CEO Jason Robbins predicted other sportsbooks will follow suit.
Neither Pen Entertainment or Rush Street InteractiveBoth Illinois sportsbook operators followed suit with the surcharge.
FanDuel also said Tuesday it would not impose surcharges and would instead offset the impact of higher state taxes with more localized marketing and promotions. The company expects a net impact of $40 million in the second half of 2024.
Peter Jackson, CEO of FanDuel’s parent company, Flutter, said Illinois’ tax hikes could actually be a competitive advantage.
“Smaller players may be forced to raise prices, which will allow us to gain market share and offset that,” he said in the company’s earnings call.
Gaming analysts praised DraftKings’ decision to scrap the plan by charging an additional fee.
“Users were disappointed with the company’s initial decision, so we view the decision to remove the surcharge as positive news,” Piper Sandler analyst Matt Farrell wrote in a note.
“This change in policy should remove some uncertainty around execution risks (such as market share and reputational impacts) but it also raises questions about how DKNG can offset the impact and whether an adjustment to its guidance is needed,” Truist analyst Barry Jonas said.
FanDuel maintains a 47% market share of U.S. sports betting based on total gaming revenue, and also maintains its leading position in iGaming (online casino gaming) with a 25% share based on total gaming revenue.
With iGaming, the profits and future growth far exceed sports betting, making the competition tougher and more intense.
According to the American Gaming Association, in the first five months of 2024, operators reported $677 million in iGaming revenue in just the seven states where it’s legal. By comparison, sports betting revenue totaled $1 billion in 38 states and Washington, D.C., during the same period.
Additionally, a new report from game makers Light & Wonder and Vixio estimates that if all states that currently allow land-based casinos and sports betting allowed iGaming, total annual gaming revenue would be $48 billion.
The gambling industry appears to be ignoring concerns about an economic downturn, even as many other consumer-dependent businesses report reduced spending.
According to a CNBC/Generation Lab poll, 9% of people ages 18-34 say they spend at least $100 a month on online gambling, while 3% spend more than $300 a month on online gaming.
sports betting exchange traded funds, Bettsrose 2% on Wednesday, its third consecutive day of gains and its highest level since January.
DraftKings shares are down about 9% since the beginning of the year, while Flutter shares are up nearly 15%.
