In a move to bolster profits, DraftKings is set to introduce a new gaming surcharge in states with high sports betting tax rates. Starting next year, winning bets in states like Illinois, New York, Pennsylvania, and Vermont, where tax rates exceed 20%, will see this surcharge implemented.
DraftKings’ CEO, Jason Robins, compared the surcharge to standard practices in other industries, like hotels and taxis, underscoring the company’s strategy to mitigate the impact of hefty state taxes. This announcement came on the heels of DraftKings’ second-quarter earnings report, which celebrated the company’s first-ever profitable quarter since going public. With revenues hitting $1.1 billion, matching consensus estimates, the company is on a solid growth trajectory.
Illinois’ recent tax hike, imposing up to 40% on companies with the largest adjusted gross revenue, and New York’s steep 51% tax rate have put pressure on betting companies. Robins emphasized that the surcharge will be minimal, giving an example where a $10 bet to win $20 would incur only a 30-cent charge.
DraftKings is bracing for potential customer pushback but is transparent about the surcharge. Robins hopes that states might reconsider their tax rates when they see the direct impact on customer experience and company investment.
Despite these changes, DraftKings remains optimistic. The company raised its revenue guidance to a range of $5.05 billion to $5.25 billion, anticipating up to 43% year-over-year growth. However, the 2024 adjusted EBITDA guidance was lowered, reflecting the cautious outlook amidst these new tax strategies.
DraftKings reported a significant profit milestone, with a net income of $63.8 million for Q2, a stark contrast to the $77.3 million loss from the previous year. Revenue rose by 26% to $1.1 billion, driven by strong customer engagement, new market expansions, and the acquisition of lottery app Jackpocket.
The company’s strategic moves, including the launch of operations in Washington D.C. and anticipated positive EBITDA from Jackpocket, are expected to offset the Illinois tax increase. DraftKings projects an adjusted EBITDA of $900 million to $1 billion next year.
With mobile sports betting now live in 25 states and Washington, D.C., and ongoing legislative efforts in 10 more jurisdictions, DraftKings is poised for further growth. The announcement of a $1 billion share repurchase program underscores the company’s robust market position, with a market cap of around $14 billion.
As DraftKings navigates these new tax terrains, its strategic adaptations and growth plans signal a resilient future in the competitive world of mobile sports betting.
(Source: Quartz | Sportico | SportsHandle)
