Gaming surcharges will be added to winning DraftKings customers in four states

On Thursday, industry operator DraftKings announced that they plan to implement a gaming tax surcharge to customer net winnings in four states. That includes Illinois, New York, Pennsylvania, and Vermont. This news broke ahead of DraftKings Q2 which will start on Friday morning. DraftKings expects this surcharge to go into effect on January 1. Sources have reported this surcharge was created to help sizable and growing tax rates. Earlier this year, Illinois raised its sports betting tax rate. Additionally, New York has a 51% tax rate and Pennsylvania’s is 36%. These are all states with large populations and significant tax rates compared to other jurisdictions. DraftKings CEO Jason Robins had this to say about the surcharges being added down the line.

“There is a solution here,” said Robins. “As you know, many revenue-based taxes are passed along to the consumer. The online gaming industry has not pursued this approach in lower tax jurisdictions, but it has in higher tax jurisdictions such as Germany.”

The details surrounding this surcharge are small at the moment

In a letter to their shareholders, DraftKings did not mention any specifics when it came to how large this surcharge would be. Jason Robins did mention that the number should be “nominal” to the consumer. For example, the surcharge in Illinois is not expected to be any higher than the low to mid-single digits of the customer’s net winnings. Additionally, Jason Robins said states with a surcharge will see the tax on their betting slip. Robins also believes this surcharge will be beneficial for DraftKings. They have the potential to create upside for the company’s EBITDA in 2025. Other industry operators could follow in DraftKings’ footsteps if this surcharge turns out to be effective.

DraftKings had rough news when it came to their recent earnings report. In 2024, they had to cut their EBITDA guidance to $380 million halfway through the year. That is down 24% compared to the midpoint of $500 million they had in 2023. However, their revenue guidance did jump from $4.9 billion to $5.15 billion. In Illinois for example, if a bettor placed a $10 wager on a bet that had +100 odds, they would then win $20. However, if you win the bet, you will see the Illinois surcharge be taken out. This example is only 0.32 cents lost but it’s still money being taken away from the winning bettor.