Major sportsbook operators have broken down the game tape after a costly legislative season and feel they’ve got a better plan for convincing state lawmakers not to hike taxes in future sittings.
That’s according to DraftKings Inc. CEO Jason Robins, who spoke Thursday at the Bank of America's Gaming and Lodging Conference.
Robins said DraftKings lobbies governments alongside rivals such as FanDuel, BetMGM, and Fanatics (the four are members of the Sports Betting Alliance), and that the bookmakers put their heads together after Illinois instituted a significant tax hike earlier this year.
“All of us sort of got together and said, ‘OK, this didn't go the way we thought, let's take a look at why, let's figure out how we can do better next time,’” Robins said. “So I think our playbook for combating these types of things is going to be significantly better this coming legislative season.”
DraftKings CEO Jason Robins is now having a "fireside" chat at the Bank of America Gaming and Lodging Conference. Will tweet out some highlights here...
— Geoff Zochodne (@GeoffZochodne) September 5, 2024
The Sports Betting Alliance tried to ward off the tax hike in Illinois, urging residents to contact local lawmakers to voice their opposition. That effort was ultimately unsuccessful, and another Illinois-sized tax hike could be costly for the industry.
As of July, the legal sports betting tax rate in the Land of Lincoln is now as high as 40% for bookmakers, well up from the previous flat rate of 15% for all online operators. DraftKings will likely fall into that top tax bracket, and the Boston-based bookmaker recently forecast that the tax hike would cost it around $50 million in adjusted earnings this year.
The added cost helps explain why DraftKings, FanDuel, and others are willing to set aside their rivalries and work together to avoid future rate increases. It’s also why DraftKings proposed a solution of its own, a “gaming tax surcharge” on winning customers in higher-tax states such as Illinois.
Perhaps unsurprisingly, the idea proved unpopular with the bettors who would be paying the surcharge, and DraftKings dropped its plan after the pushback and as other operators declined to follow suit.
“We decided to throw it out there, see what the reaction from customers was, see what the reaction from state governments was, and after analyzing that, determined it wasn't the right thing at this time,” Robins told the conference audience. “But, I do think that the way we went about it, I'm very proud of, because I think it was disciplined, well thought through. And in the end, we were able to get the information and feedback from the market we needed without actually costing ourselves anything.”
However, the tax increase in Illinois isn’t going away, nor are the relatively higher rates that DraftKings and others are paying in New York and Pennsylvania. Robins suggested there could be another sort of solution DraftKings ultimately goes with that doesn't rile up customers quite as much, such as slashing free bets and other promotional spending.
“I don't think that, in perpetuity, it will make sense for anybody to completely just eat any tax increase that happens anywhere,” Robins said.
'Not a great feeling'
The DraftKings CEO also pointed out that they had to contend with only three jurisdictions proposing tax hikes this year, out of the 25 states where DraftKings operates online sports betting.
It remains to be seen if more states will take a run at raising sports betting taxes next year, but so far, there are indications that the risk of higher rates has been contained for the time being.
“Anytime you see something that isn't within your control entirely, that's going to have that material an impact on your business, that's not a great feeling,” Robins said. “So I'm obviously concerned about it. But I also have heard arguments on the other side that, hey, this is probably going to only be confined to a handful of states. Maybe there'll be a few more. But really, there's not a long list of candidates of states that we think are highly likely to raise taxes. So we'll have to see.”
