With speculation swirling around whether sportsbooks will follow DraftKings and charge a fee on winning bets in high-tax states, BetRivers announced it will not be one of them.
Rush Street Interactive, owner of BetRivers and PlaySugarhouse, announced Monday it has no plans to implement a customer surcharge. It is the first operator to address the first-of-its-kind fee since DraftKings announced it last week.
“As we put our customers first, it was an easy decision for us,” RSI CEO Richard Schwartz said in a statement.
All eyes on FanDuel after BetRivers
Investors are waiting with bated breath to see whether FanDuel will follow suit, a topic expected to come up on Flutter‘s earnings call next week.
“We would expect Flutter, reporting 8/13, to be the company for any indication if a surcharge will see momentum beyond DraftKings,” Jordan Bender of Citizens JMP Securities said in a financial note.
Some analysts believe FanDuel following suit is a no-brainer.
“Our initial reaction is that this is an interesting way to mitigate higher gaming taxes, assuming its peers match (and why wouldn’t they?) It is in their financial interest and in the spirit of shareholder value to do so) but we are unsure if this will give a boost to offshore, black market sportsbooks,” Joseph Greff of J.P. Morgan said in a financial note.
FanDuel strong enough to pass
Barry Jonas of Truist believes FanDuel can mitigate the impact of high taxes without the fee, if it wants to do so.
“FanDuel may have more room to adjust pricing to offset higher IL taxes, along with lowering promos. If FanDuel haven’t been thinking about their own surcharge, it’s unclear if 12 days is enough time for FanDuel to make a decision to follow DKNG or not,” Jonas said in a financial note.
Analysts at Regulus Partners in the UK predict that will be the case and blasted DraftKings for the announcement.
“The fact that there is no structural reason for a critical mass of competitors to copy DraftKings means that they won’t, leaving DrafKings exposed as palpably offering worse value to customers with winning bets,” they said, going on to describe the fee as “economically illiterate.”
What if DraftKings acts alone?
Most analysts agree, the fee’s effectiveness is tied to adoption from competitors.
“[The surcharge] could prove highly profitable, though we think ultimate effectiveness could depend significantly on the competitive landscape and broader adoption,” Shaun Kelley of Bank of America Merrill Lynch said in a financial note.
DraftKings is “almost certain” to lose market share if it is the only sportsbook with a fee, added Carlo Santarelli of Deutsche Bank. He believes the “larger and more sophisticated customer will depart almost immediately.”
How else could DraftKings recoup costs?
DraftKings could potentially offset those losses by retaining smaller, less price-sensitive customers who tend to be more loyal to one sportsbook, Bender added.
“The timing of the surcharge, slated to start January 1, 2025, is still up for debate, but a push for customer acquisition leading into football season, while continuing to build loyalty, buys the company time on if it follows through with the initiative,” Bender said.
