DraftKings’ proposed surcharge revenue could outperform the revenue totals of some rival sportsbooks.
The sportsbook believes this small tax, which will be taken on each individual winning sports bet within the state, will help steady the ship and improve its EBITDA.
“We believe additional upside potential exists for DraftKings’ Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2025 and beyond from this gaming surcharge,” the company said in a statement.
The Illinois sports betting tax rate recently shifted from a flat 15% to a graduated rate, ranging from 20%-40%.
Based off a projection from Eilers & Krajcik Gaming, it appears the money DraftKings will make from its new surcharge could be more than other sportsbooks make from their entire operations.
Rundown of the DraftKings surcharge
DraftKings announced it would include a small surcharge on winning bets in four states:
- New York
- Pennsylvania
- Vermont
- Illinois
The common theme across these four states? They all have sports betting revenue taxes above 20%.
Illinois’s 20% minimum is the lowest of the four states, but that rate increases with an operator’s revenue. It can reach a maximum of 40% if an individual operator’s revenue is $200 million or more annually.
Pennsylvania and Vermont both have tax rates in the 30% range. New York leads the group, taxing revenue at a whopping 51%.
This move can also be seen not just as a way for DraftKings to improve its EBITDA, but as a way to fight back against higher tax rates. There’s a reason the four states were selected.
Time will tell if other sportsbooks join in, but for now, it appears DraftKings is the outlier. BetRivers has already publicly stated that it will not impose a similar surcharge. PENN Entertainment, parent company of ESPN Bet, has also eschewed adding a bet surcharge for the time being.
Things could certainly change if an operator like FanDuel takes a page out of DraftKings’ book, though.
DraftKings surcharge worth more than other sportsbooks’ entire gaming totals
It appears that DraftKings’ new surcharge, if implemented, will pay off. The money it will make from this move alone will surpass entire revenue totals for some operators.
Let’s be clear: DraftKings has one of the biggest customer pools in the country. So it makes sense that by imposing a slight tax on winning bets, the money it would take in would be eye-catching.
Eilers & Krejcik Gaming shared that it believes that DraftKings will make close to $270 million in revenue from the surcharge in Illinois, Pennsylvania, Vermont and New York. EKG’s estimates came on the belief that the winning bet tax rate will be anywhere from 1% to 7%.
That’s a fair estimate. Especially considering that if DraftKings opted for a higher rate, it risks losing its valuable customer base to a competitor. EKG also believes that the surcharge will vary by state and not be flat across the board.
EKG assumes the highest surcharge rate would be in New York, given that it has the highest tax rate on operator revenue. In that state alone, EKG predicts the surcharge could result in $209 million in revenue for DraftKings.
Based on its total surcharge projections across the four states, EKG forecasts this will result in more revenue than BetRivers, bet365 and Circa generate in a year. That $270 million in revenue treads close to Fanatics, ESPN Bet, and Hard Rock.
BetRivers and bet365 aren’t operators to scoff at. These are successful companies, so this discrepancy is jarring. The fact that the surcharge could also compete with ESPN Bet, Fanatics, and Hard Rock—operators with deeper pockets than others mentioned—is also noteworthy.
If FanDuel joins, surcharge revenue could rank fourth in revenue over all but one operator
EKG believes that if FanDuel implemented something similar in the same four states, it could generate a total revenue of $358 million. That means DraftKings and FanDuel could combine to generate a revenue of around $629 million off the surcharge.
That total is more than every other operator in the country outside of BetMGM. It’s slightly higher than Caesars, one of the entertainment industry titans.
This will be something to keep an eye on going forward. Perhaps FanDuel believes DraftKings customers will make a switch after being hit with the new surcharge. But it could also cash in as well.
