DraftKings sent shockwaves through the betting industry last week with an announcement that, beginning in 2025, the sportsbook giant plans to add a surcharge to payouts from winning bets in states with high sports betting tax rates and multiple operators.
Other industries, such as hotels, airlines and ride-sharing services, have tacked on additional fees for their services, but this would be a first in the U.S. bookmaking industry. Some analysts don't expect it to be the last, though, and are watching competing sportsbook operators closely to see what happens next.
"There are a lot of ways this can go," Chris Grove, a prominent gambling industry analyst with Eilers and Krejcik Gaming, told ESPN. "No one knows. I do think on balance, the range of possible outcomes favors one where DraftKings does go forward with this and where most relevant, if not all relevant competitors, follow."
As the sportsbook industry waits to see what dominoes fall next, here are some of the fundamental questions on what could be a game-changer in the fledgling legal betting market in the U.S.
What is DraftKings' plan for a surcharge?
DraftKings CEO and co-founder Jason Robins said last week that the company plans to begin tacking on a surcharge on winning bets in states with sports betting tax rates greater than 20% and multiple sportsbook operators on Jan. 1, 2025. The surcharge will launch in Illinois, New York, Pennsylvania and Vermont, four states that fit that criteria.
(The District of Columbia also currently meets that criteria, but recent changes to the D.C. market could require additional examination before adding it to the list of jurisdictions where the surcharge would be included.)
Robins described the fee as "fairly nominal." The company used Illinois as an example and said a $10 winning wager at even odds would pay out only $9.68 instead of $10, after a 32-cent "Illinois gaming tax surcharge." Illinois recently raised taxes on sports betting from 20% to 40% on the largest sportsbook operators.
The surcharge could be larger in states with higher tax rates such as New York (51%).
Will other sportsbooks follow?
To be determined, and opinions vary.
FanDuel, Caesars Entertainment, Hard Rock and Penn Entertainment, which operates sportsbook ESPN BET, each declined comment this week when asked about DraftKings' surcharge plan.
"I think every company has to do what's best for their own business," Robins said on last week's earnings call. "I think we believe this is what's best for us. And I would imagine that if that's our calculus, then others would come to the same conclusion."
Rush Street Interactive, which operates sportsbook BetRivers, among other brands, released a statement Monday saying it will not implement a surcharge.
Why doesn't DraftKings just increase the vig -- the amount the sportsbook charges customers per bet -- instead of tacking on a surcharge?
Robins said DraftKings considered different approaches and were still open to new ideas, but ultimately, the company believes customers would appreciate the transparency.
"If you look at sort of the way it's typically done in other industries, whether it'd be hotel taxes or even the sales tax that you pay when you buy something at the store, taxis ... it's typically line itemed out separately and usually 100% passed along to the consumer," Robins said. "I know there's maybe benefit to hiding it, because many people don't notice, but I think over the long term customers appreciate transparency and even if they don't love that, their state implemented a high tax and some of that is being passed along. I think they prefer that to not knowing if it were buried in the pricing or something."
Grove says being up front about the charge also signals to states how much DraftKings thinks its business model can sustain when it comes to tax rates.
"I think their fear was, without drawing some kind of line in the sand, they were going to see tax rates everywhere inevitably drift toward the New York ceiling," Grove said. "That may still happen, but at least they tried."
How may bettors react to the surcharge?
Robins expects some bettors to be turned off by the surcharge, especially those who are price sensitive and know the challenges of overcoming what essentially is increased vig. To make a profit betting against -110 odds -- the vig charged traditionally on straight bets at U.S. sportsbooks -- bettors must win 52.4% of their wagers, a tall task as it is and one that gets even more difficult as the vig grows.
However, most of the betting public is not overly sensitive when it comes to prices and odds, especially when it comes to parlay payouts.
"I think that players betting multi-leg parlays and things like that are going to be less sensitive, because the payout is already very large," Robins said.
Taylor Caby, the CEO and co-founder of fantasy and betting analysis site Establish the Run, said in a social media post on X that he believes states that haven't yet legalized sports betting, including California and Texas, will likely lean toward higher tax rates, leaving bettors facing surcharges and increased vig.
"The worst part about all of this is that most bettors actually don't really care about price, which is why states can charge massive tax rates and why DK responded with a surcharge," Caby wrote. "I don't know if what DK is doing will work, but I actually give them credit for trying to do something about it.
"I'm not saying people should support it, but I am saying that if you do care about price as a bettor, you should also care about tax rates."
Professional sports bettors will be turned off by the added costs, but Grove points to recent changes to payouts from casino games like blackjack and roulette and notes that companies have found other ways to incentivize customers to stick around, despite those adjustments.
"I think they will definitely create room for this to move from a penalty to a perk," Grove said.
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