BetRivers’ parent company reiterated Monday it has no plans for a winning bet surcharge, taking a not-so-subtle shot at DraftKings, its much larger rival. The statement puts BetRivers on the opposite side of a debate that could alter the US sports betting industry.
Saying it was “reaffirming its dedication to providing exceptional value to its players,” BetRivers' parent company Rush Street Interactive made a clear distinction from DraftKings’ pending charge in four states.
“As we put our customers first, it was an easy decision for us,” Rush Street CEO Richard Schwartz said in a statement.
Starting Jan. 1, 2025, DraftKings customers in “high tax” states of New York, Pennsylvania, Illinois, and Vermont will face a roughly 3-5% surcharge on each winning bet. Despite bettor uproar, DraftKings officials were publicly bullish that the fee would more than make up for the revenue from potential lost bettors.
Tax battle plays central role
DraftKings’ controversial move has brought a long-simmering debate over taxes back to the forefront.
Though DraftKings, and all other US sportsbooks, have railed against New York’s nation-high 51% tax on gross gaming revenue, many lined up to earn a limited number of licenses. In Pennsylvania, there are 10 operators, including eight of the nation’s nine highest-grossing books, all of which agreed to a 36% percent rate. DraftKings also agreed to a 31% rate in Vermont under an unusual regulatory structure where taxes vary by operator.
An exception is Illinois, where lawmakers recently upped the flat 15% rate to a graduated 20%-40% rate based on different revenue levels. This disproportionally affects DraftKings as well as FanDuel, which each have an estimated market share of roughly 30%.
Sportsbooks have argued in statehouses nationwide for a “fair” rate between 10-20% of gross gaming revenue. Only the four aforementioned states have rates above 20%. DraftKings said there were no plans to extend the fee to additional states.
Even in a limited number of jurisdictions, the fee raises questions about how operators may deal with taxes in the future. While US sportsbooks combined to take in more than $100 billion in bets annually, the net profit margins are typically in the mid-single-digits.
US online gaming operators have spent billions in sports betting product development and player acquisition costs, with the implicit hope it could help them should additional states legalize far more lucrative online slots and table games.
While 38 states plus Washington DC have legalized some form of sports betting in the past six years, only four have competitive online casino markets.
The rapid expansion of new sports betting jurisdictions initially helped increase sportsbooks’ year-over-year revenues, but that financial lifeline has dried up; no state has approved legal sports betting so far this year. Facing pressure from investors after hundreds of millions of dollars in losses, publicly traded companies such as DraftKings – and Rush Street – are looking for new ways to turn profits.
BetRivers today said it would not add a winning bet surcharge, a not-so-subtle shot at DraftKings' plan to do so in NY, PA and IL. As (many) X users have pointed out, BetRivers has -112 spread lines instead of standard -110 in New York (though not in PA or IL) pic.twitter.com/FAo0tOOQVc
— Ryan Butler (@ButlerBets) August 5, 2024
Social media users noted Monday that while BetRivers may not add a winning bet surcharge, it indirectly passes on its tax burden in New York by adding extra vigorish or “juice” to each bet. BetRivers preseason NFL lines on spread bets at its New York sportsbook Monday were -112 aside, instead of the industry standard -110 offered in all other states.
This would translate to a roughly 2% surcharge on all winning bets.
Key decisions from other sportsbooks await
The business merits of adding an after-the-wager surcharge on all winning bets will be determined by DraftKings’ financial bottom line in the coming months. In the meantime, it raises a major question about how other operators will handle this move by one of the market share co-leaders.
BetMGM (No. 3 in market share) and Caesars (No. 4) made no indication of such a move during their respective earnings calls days before DraftKings' announcement. ESPN Bet parent Penn National will release earnings Aug. 8, but it seems unlikely a company with low single-digit market share would be bold enough to follow with its own unpopular tax.
That sets up even more significance for FanDuel parent Flutter Entertainment's Aug. 13 call. If FanDuel announces a similar surcharge, it would mean two-thirds of betting handle in several of the nation’s highest-grossing markets would face fees on every winning bet.
Such a move could lead other books to double down on BetRivers’ lead and try to peel away market share by offering “tax free” bets. Or it could give other books cover to follow suit.
Nine sportsbooks make up 99% of nationwide sports betting handle. If the two market share leaders add a tax, it wouldn’t take many dominoes for most of the rest of the industry to fall.
