DraftKings is considering a “more favorable solution” to high taxes than the surcharge fee it briefly planned but withdrew amid “negative customer feedback.”
In an interview during the Bank of America Gaming and Lodging Conference last Thursday, DraftKings CEO Jason Robins addressed the fee on winning bets his company planned and then abandoned for high-tax states next year. The fee, aborted within 13 days, sparked harsh criticism as other sportsbooks declined to follow it, but is now seemingly in the past for Wall Street analysts.
“Clearly, this was something that our customers — they didn’t like this type of solution,” Robins said. “Our thinking behind it was, well, we can invest more in promo [for] you and other things because we’re going to be collecting more upfront. But we got feedback that people didn’t like this particular solution, so we changed it.
“But there might be some other sort of solution ultimately that we pursue that does get a more favorable response.”
DraftKings CEO: plan ‘deliberate’
Robins previously said it would take “quite a lot” of top-line deterioration to make the surcharge “not worthwhile.”
However, its stock did hit a nine-month low of $29.83 a share just hours before the change. Heading into the first Monday Night Football game of the NFL season, the company’s stock closed at $36.11 a share, up 4.3% year-to-date.
“This was one where we were very deliberate. We said, look, we’re not going to implement it right away. Therefore, if there is a cost, it is not going to be, hopefully not any cost at all because we’ve actually never done it. And two, it’s very reversible. We haven’t launched anything. We can always say we changed our mind,” Robins said.
“So we decided to throw it out there and see what the reaction from customers was, see what the reaction from state governments was, and after analyzing that, determined it wasn’t the right thing at this time. But I do think that the way we went about it, I’m very proud of because I think it was disciplined and well thought through.”
Seeking an alternative, at some point
Robins added that sportsbook operators learned from the Illinois tax hike. He believes their “playbook for combating these types of things is going to be significantly better this coming legislative season.”
He declined, however, to say how exactly DraftKings would mitigate the impact of higher taxes if they fail.
“I think that there is something that maybe isn’t exactly this that I think could be a solution,” Robins said The bottom line is, at some point, I guess it depends on what happens in other states, but I don’t think that in perpetuity, it will make sense for anybody to completely just eat any tax increase that happens anywhere.”
FanDuel to reduce promos, marketing
DraftKings expects to lose $50 million next year from a recent tax hike in Illinois, which upped the top rate larger sportsbooks pay from 15% to 40%. The Sports Betting Alliance, a chief lobbying arm for online sportsbooks, cautioned that it will fuel the black market, and worsen products, promotions, and odds.
FanDuel advised a similar financial impact, but declined to adopt a similar fee.
“We believe that moderating our levels of generosity or reducing local marketing efforts is a more effective response to higher tax rates,” Peter Jackson, CEO of FanDuel parent Flutter, said during his company’s second-quarter earnings call.
Neither sportsbook employs state-specific odds or pricing, spokespeople with DraftKings and FanDuel confirmed.
