With the release of its second-quarter earnings report, FanDuel parent company, Flutter Entertainment, revealed information that had an immediate impact on the Illinois sports betting landscape and possible implications on black market growth.
First, Flutter’s indication that it would not follow the lead of DraftKings and enact a gaming surcharge on customers in high-tax states like Illinois caused its competitor to quickly reverse its plans.
Just two hours after Flutter CEO Peter Jackson said FanDuel wouldn’t charge a fee on winnings, DraftKings released a statement walking back the controversial plan that drew the ire of bettors, analysts, and media.
High taxes help the black market thrive, Flutter cautions
Even though Flutter declined to fall in line with DraftKings’ attempt to boost its revenue with a surcharge, the company indicated that the effects of high state taxes are detrimental to the industry.
Illinois has a graduated tax, and high-revenue operators like FanDuel Sportsbook IL and DraftKings Sportsbook IL face a 40% tax rate once they accrue over $200 million in adjusted gross revenue. Only New York has a higher tax rate (51%).
Jackson laid out his reasoning for how high tax rates can lead to more business for illicit offshore operators while criticizing states like Illinois and New York.
“I think it’s important to recognize that there’s a happy medium for tax rates that enables operators to maximize market growth, provides the best experience for customers and over time, maximizes revenue for states. And most states have taken a sensible approach to date. I do think though that instituting a graduated tax system that punishes those who have invested the most to grow their businesses is wrong. I think it will drive customers to offshore operators or potentially to onshore operators who are operating unregulated and untaxed sport parlays under the guise of sweepstakes.”
Flutter announces plans to counterbalance high tax rates
Flutter also outlined its 2025 plans to compensate for high tax rates.
“We expect to directly mitigate 50% of the cost in 2025 through locally optimized promotional and marketing spend. This is prior to second-order mitigation impacts such as in-state market share gains, which we have typically observed market leaders such as FanDuel to benefit from over time when regulatory changes are introduced.”
During the call, Jackson also touched on the effect of high taxes on smaller operators.
“We often find as well that smaller players may also have to increase their prices which leads to us capturing more share which provides an offset for us.”
Basically, smaller operators that can’t handle high taxes will be squeezed out, and those customers will find their way over to larger sportsbooks with better odds, like FanDuel.
Better-than-expected earnings and a solidified national position
The overall tone of Flutter’s earning presentation was upbeat as FanDuel is enjoying increased revenue and customers, exceeding Wall Street expectations. Year-over-year growth for the nation’s leading operator included a 27% increase in average monthly players and 39% revenue growth.
Illinois experienced its first sub-$1 billion monthly handle in June after nine straight months over that figure. However, the year-over-year increase was still robust, with the handle 27% higher than in June 2023 showing that online sports wagering was still healthy in the Land of Lincoln.
