DraftKings recently faced backlash for its decision to impose a surcharge on winning bets in high-tax states. The company faced intense scrutiny and negative feedback from customers and peers, prompting them to backtrack on their plans just hours after Flutter’s second-quarter earnings call on August 13.
The initial announcement of the winners’ surcharge by DraftKings in early August received swift backlash, leading to the company’s decision to reverse course. While Rush Street Interactive and Penn Entertainment had already stated they would not follow DraftKings’ lead, all eyes were on FanDuel to see how they would react.
Following DraftKings’ announcement to drop the surcharge, Wall Street reacted positively, with DraftKings’ shares rising nearly 2 percent. The company’s shares reached as high as $33.50 before settling at $32.06. CEO Peter Jackson confirmed during a Q&A session that DraftKings had no plans to introduce a winners’ surcharge, shutting down further discussion on the topic.
Analysts like David Katz from Jefferies suggested that DraftKings’ initial initiative may have been intended to spark debate and awareness rather than recoup margins. However, industry insiders were less forgiving, pointing out DraftKings’ history of accepting or proposing high tax rates in states like New Hampshire and New York.
In 2019, DraftKings offered to pay New Hampshire 51 percent of revenue for a monopoly in the state, setting a precedent for their willingness to operate under high tax conditions. When mobile sports betting was legalized in New York, DraftKings and FanDuel played a significant role in advocating for legislation that included a 51 percent tax on winning bets.
Fantasy Advocates for New York Sports criticized DraftKings for using high tax rates as a justification for the proposed winners’ surcharge, suggesting that it could have amounted to a $32 million cash grab from players’ pockets. The decision to backtrack on the surcharge may have saved DraftKings from further backlash and maintained their reputation in the industry.
Overall, DraftKings’ experience with the winners’ surcharge highlights the delicate balance between maximizing profits, maintaining customer loyalty, and navigating regulatory environments in the highly competitive sports betting industry. The company’s quick response to customer feedback demonstrates the importance of listening to stakeholders and adapting to market conditions to ensure long-term success.