DraftKings and Flutter Entertainment, owner of FanDuel, shares dropped dramatically amid the news that the Illinois Senate has passed a state budget that includes a hike in sports betting tax.
Operators have paid a 15% tax rate since June 2021 when sports betting launched in the state, but now they could pay a progressive wagering tax that would levy a 40% tax on operators that generate the highest adjusted gross revenue.
After being passed by the Senate, the House concurred and the bill is now on the way to Gov. JB Pritzker’s desk. If he signs it, the new rate would take effect on July 1. The change would make Illinois’ maximum tax rate the second-highest behind New York’s 51% rate.
DraftKings experiences worst daily loss since 2022
DraftKings and FanDuel dominate online sports betting in Illinois, taking about 90% of all online sports wagers in the first four months of the year. As a result, the duo would be most impacted by the tax change.
Following the news, DraftKings shares finished trading on Tuesday down 10% at $36.61. This marked the worst daily loss for DraftKings since November 2022, and its lowest closing share price since January. Similarly, FanDuel owners Flutter Entertainment closed at $188.33, down 8%.
JP Morgan estimates that the change could cost DraftKings between $101 million and $134 million.
On an earnings call earlier this month, DraftKings CEO Jason Robins responded to rumors of the tax hike by saying that higher taxes can be dealt with in several ways, including lowering marketing spending and reducing promotional offers for customers.
“In the end, the cost has to get absorbed by the consumer if the government raises taxes,” added Robins.
Leading sportsbooks could ‘reevaluate’ Illinois operations
As to be expected, the proposal has received fierce pushback from some operators.
The Sports Betting Alliance (SBA), a coalition of leading sports betting operators including FanDuel, DraftKings, BetMGM, and Fanatics, called the proposal an “extremely disappointing decision that will cause real harm”.
SBA President Jeremy Kudon said the new tax would “counterproductively penalize sports betting operators who invested millions into the local economy and created jobs” and would have “devastating” effects on sportsbooks’ in-state partners including casinos who partner with communities in the state.
He added that SBA members could be forced to rethink their Illinois operations as a result of the tax hike.
New Jersey also proposes tax hike
Illinois isn’t the only state looking to increase tax rates for sports betting operators.
Last month, Senate Bill 3064 was introduced in New Jersey by Sen. John F. Mckeon, proposing the state’s iGaming and sports betting tax rate on gross gaming revenue doubled from 13-15% to 30%.
Elsewhere, in Ohio tax doubled from 10% to 20% just six months after the launch of sports betting in the state last year. At the time there was also opposition to the increase.
