flutter Amazon.com Inc. reported massive second-quarter earnings this week, wowing investors and sending its shares up about 8% on Wednesday as the company’s FanDuel betting platform gained market share and revenue grew strongly, even in states well-established with sports betting and online gaming.
But it was the announcement that FanDuel would not add a surcharge to compensate for the Illinois tax increase that got the attention. Earlier this month, rival FanDuel announced it would not charge a surcharge to compensate for the Illinois tax increase. Draft Kings It said it would impose additional fees on consumers in states with the highest taxes on sports betting.
DraftKings shares initially fell 5% in extended trading after the FanDuel release, and the company quickly backtracked on its decision to tax customers. DraftKings shares were last up more than 2%.
“We always listen to our customers and after listening to their feedback we have decided not to move forward with the gaming tax,” DraftKings said in a statement. “We are committed to always providing the best value in the industry to our loyal customers.”
The nominal tax would apply to customer winnings in states with several operators that have a tax rate above 20%, including Illinois, New York, Pennsylvania and Vermont. Illinois approved a 40% tax rate on gambling companies with the largest adjusted gross revenues. New York and New Hampshire retain 51% tax rates on sports betting companies.
DraftKings was the first operator to announce such a fee for users, but CEO Jason Robbins expected other sports betting companies to follow.
no Between Entertainment no Rush Street InteractiveBoth companies, which operate sportsbooks in Illinois, have followed suit on the additional fees.
FanDuel said Tuesday it will also avoid imposing additional fees, instead offsetting the impact of higher state taxes through locally designed marketing and promotions. The company expects a net impact of $40 million in the second half of 2024.
A sign is seen hanging on a wall in the reception area of the offices of Fanduel Inc. in Edinburgh, U.K., Tuesday, Feb. 7, 2017.
Chris Ratcliffe | Bloomberg | Getty Images
Peter Jackson, CEO of Flutter, FanDuel's parent company, said Illinois' tax increase could actually prove to be a competitive advantage.
“Smaller players may also have to raise their prices, which would result in us taking a larger share, which would provide compensation for us,” he said on the company’s earnings call.
Gaming analysts have praised DraftKings' decision to scrap its plans to impose additional fees.
“We see the decision to remove the surcharge as a positive for the story, as users were disappointed with the company’s initial decision,” Piper Sandler analyst Matt Farrell wrote in a note.
“This pullback should remove some of the uncertainty around implementation risk (including market share and/or reputational impact), but it also raises the question of how DKNG will be able to offset this impact and/or whether guidance needs to be adjusted,” said analyst Barry Jonas of Truist.
FanDuel holds a 47% market share in the U.S. in sports betting based on total gaming revenue. It also has taken the lead in iGaming, or online casino gaming, and defends that lead, with a 25% share based on total gaming revenue.
Competition in the eSports industry has become more intense and fierce because the profits and future growth far outweigh the bet on sports.
During the first five months of 2024, operators reported $677 million in online gaming revenue from just seven states where it’s legal, according to the American Gaming Association. For comparison, sports betting revenue totaled $1 billion in the same period across 38 states and Washington, D.C.
New estimates from gaming company Light & Wonder and Vixio suggest that total annual gaming revenue could reach $48 billion if every state that currently allows land-based casinos or sports betting allowed online gaming.
The gambling industry appears to be shrugging off recession fears, even as many other consumer-based businesses report a decline in spending.
According to a CNBC/Generation Lab survey, 9% of people ages 18 to 34 say they spend at least $100 a month on online gambling. Three percent of people spend more than $300 a month on online gaming.
Sports Betting Exchange Traded Fund, pizzaTechnology stocks rose 2% on Wednesday, posting their third straight daily gain and their best day since January.
DraftKings shares are down about 9% so far this year, while Flutter shares are up about 15%.
