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Just hours after primary competitor Flutter announced that it would not follow DraftKings' lead in instituting a customer surcharge in high-tax U.S. jurisdictions, DraftKings said it would abandon its plan to enact the charge entirely.
Shortly after the conclusion of a Flutter Entertainment quarterly earnings call in which CEO Peter Jackson confirmed FanDuel had no plans to implement its own surcharge on winning players, DraftKings announced that it would no longer seek to apply the surcharge either.
“We always listen to our customers, and after hearing their feedback we have decided not to move forward with the gaming tax surcharge,” the company said in a statement released on Tuesday evening (August 13). “We are always committed to delivering the best value in the industry for our loyal customers.”
The reversal comes just 12 days after DraftKings announced that it would apply the surcharge beginning in January 2025 in an effort to bring the effective tax rate in New York, Pennsylvania, Illinois and Vermont, which all boast tax rates of 30 percent or higher, down to about 20 percent.
Several analysts posited that the success of a move would likely be dictated by whether competitors followed suit and, at the time, DraftKings CEO Jason Robins said that he expected competitors to implement with surcharges of their own, although he acknowledged that companies may utilize other ways to negate higher tax rates.
“I think every company has to do what's best for their own business,” he said during an August 2 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. But we really don't know and we'll have to see.”
However, the following week, several competitors, including Rush Street Interactive and Penn Entertainment, announced that they would not be implementing a surcharge.
On Tuesday, Flutter joined the chorus, with Jackson saying that the company would reduce promotional spending as a response to Illinois’ recent pivot to a graduated tax structure rather than surcharge customers.
“I do think that instituting a graduated tax system that punishes those who have invested the most to grow their businesses is wrong,” Jackson said Tuesday. “I think it will drive customers to offshore operators or potentially to onshore operators who are offering unregulated and untaxed prop parlays under the guise of sweepstakes.
“We have lots of patent recognition of operating internationally in high tax locations, and our experience is that moderating levels of generosity, or indeed reducing local marketing is the best response,” he added. “We often find as well that smaller players may also have to increase their prices, which leads to us capturing more share, which provides an offset for us.”
“We think that moderating the levels of generosity and reducing local marketing is the best customer option, and we have no plans to introduce a surcharge for winners.”
Flutter said in its earnings report it expected to mitigate 50 percent of the added cost in 2025 from the Illinois tax increase, which taxes the highest earning operators up to 40 percent, through promotional and marketing cuts, before any other market-share gains from operators that may struggle to compete after a tax increase.
