Budrul Chukrut | SOPA Images | Lightrocket | Getty Images
The power of mobile betting DraftKings plans to impose a tax on consumers in states with the highest sports betting tax rates as the company tries to boost profits.
The company announced Thursday that starting next year, it will apply a gaming surcharge to winning bets in states with multiple bookmakers and where the tax rate is above 20 percent. This includes Illinois, New York, Pennsylvania and Vermont.
“We decided that the best course of action is to do what really every other industry is doing [does] — whether it’s hotels, whether it’s taxis, everything else you buy generally has some kind of tax,” DraftKings CEO and co-founder Jason Robins told CNBC.
The announcement came as the sports betting company went public second quarter earnings, which marked the company’s first profitable quarter as a public company. DraftKings reported revenue of $1.1 billion, roughly in line with consensus estimates, according to LSEG.
Fears of gambling tax hikes weighed on shares of DraftKings and other betting companies such as FanDuel in May, when Illinois approved a tax increase on sports betting revenue. The reduced tax rates impose a 40% levy on companies with the highest adjusted gross income. New York and New Hampshire each maintain a 51% tax rate on sports betting companies.
In a letter to shareholders on Thursday, Robins said the new charge would be nominal to the customer. In Illinois, for example, it would correspond to a low to mid-single digit percentage of net profits.
“If you bet $10 to win $20, you’d pay about 30 cents,” Robins said, citing an example.
An illustration of the DraftKings app, introducing a new gaming overlay.
DraftKings
DraftKings is believed to be the first US carrier to implement a tax on a player’s winnings. Robbins said he gave it a lot of weight and hopes it will make states think twice about the tax rate.
“I think if states start to realize that above a certain level, we can’t invest in our product and our customer experience the way we need to … it might make them think differently about it,” he added.
It also looks at customer response. “We’re not going to hide it,” Robbins said. “Obviously, we could see some customers leaving player betting activity as well if they don’t like it.”
Robins says DraftKings does not include the new tax in its guidelines.
The company raised revenue guidance to a range of $5.05 billion to $5.25 billion from previous guidance in the range of $4.80 billion to $5 billion. The updated guidance equates to 38% to 43% year-over-year growth.
However, the sports betting giant lowered its 2024 adjusted EBITDA guidance to between $340 million and $420 million, down from previous guidance of $460 million to $540 million.
The company posted a second-quarter profit for the first time, posting net income for the quarter ended June 30 of $63.8 million, or 10 cents a share, compared with a net loss of $77.3 million, or 17 cents a share. , a year earlier.
Analysts polled by LSEG had expected a loss of 1 cent per share for the period.
Revenue rose to $1.1 billion, up 26% from $874.9 million a year earlier. The company said the revenue growth was mainly due to continued healthy customer engagement, expansion into new jurisdictions and the acquisition of lottery app Jackpocket.
“The outperformance we are seeing with customer acquisition, the Washington DC launch, our expectation for Jackpocket to deliver positive EBITDA next year, as well as the underlying trends with our existing customers and our performance on the handle side, all should offset the Illinois tax increase next year,” Robins said on the company’s earnings call. “So even if we don’t get any benefit from the fee, we’ll still see $900 million to $1 billion in adjusted EBITDA next year.”
More than 30 states now allow some form of sports betting and many of them allow mobile and online betting. DraftKings is live with mobile sports betting in 25 states and Washington, D.C. The company’s iGaming division is live in five states.
The company said so far this year, 10 more jurisdictions have either enacted legislation to legalize mobile sports betting or introduced a bill that could lead to a mobile sports betting referendum during an upcoming election.
DraftKings also announced its first $1 billion share buyback program. The company has a market capitalization of about $14 billion.
