Trembling reported phenomenal quarterly earnings this week, wowing investors and sending Shares up about 8% Wednesday as the company FanDuel betting platform conquers market share and grows revenue dramatically, even in established countries with sports betting and online games.
But it was the announcement that FanDuel would not add additional fees to offset the Illinois tax increase that drew attention. Earlier this month, the competition DraftKings said it will introduce a surcharge on consumers in countries where taxes on sports betting are the highest.
DraftKings shares initially fell 5% in extended trading after FanDuel launched, and the company has since reversed course for its customers. DraftKings shares were last up more than 2%.
“We always listen to our customers and after hearing their feedback, we decided not to move forward with additional gaming tax fees. We are always committed to providing the best value in the industry to our loyal customers,” DraftKings said in a statement.
A nominal tax will be applied to customer winnings in states with some operators that have a tax rate over 20%, including Illinois, New York, Pennsylvania and Vermont. Illinois approved a 40% tax rate on gambling companies with the largest adjusted gross revenue. New York and New Hampshire each maintain a 51% tax rate on sports betting companies.
DraftKings is the first operator to announce such a fee to users, but CEO Jason Robins predicts that other sportsbooks will follow suit.
not Penn Entertainment or Rush Street Interactivetwo of which operate sportsbooks in Illinois, followed by additional costs.
FanDuel said Tuesday it will also eliminate additional fees, instead offsetting the impact of high state taxes with more locally tailored marketing and promotions. The company expects a net impact of $40 million in the second half of 2024.
Peter Jackson, CEO of Flutter’s parent FanDuel, said the Illinois tax increase could actually prove a competitive advantage.
“Smaller players may have to increase their prices, which leads us to hold more shares, which provides an offset for us,” he said on the company’s earnings call.
Game analysts praised DraftKings’ decision to draft plans with additional fees.
“We see the decision to remove the surcharge as a positive for the story, as users were disappointed with the company’s initial decision,” wrote analyst Piper Sandler Matt Farrell in a note.
Truist analyst Barry Jonas said, “The return should remove some uncertainty about the execution risk (including market share and/or reputational impact), but it also leads to the question of how DKNG can balance the impact and/or if the guidance needs to be tweaked.”
FanDuel maintains a 47% share of the US sports betting market based on gross game revenue. It also took and defended the lead in iGaming, or online casino games, with a 25% share based on gross game revenue.
The competition is fierce and fierce in iGaming because profits and future growth far exceed sports betting.
For the first five months of 2024, operators reported $677 million in iGaming revenue from just seven countries where it is legal, according to the American Gaming Association. For comparison, sports betting revenue totaled $1 billion at the same time in 38 states and Washington, DC
And a new report from game maker Light & Wonder and Vixio estimates annual gross gaming revenue of $48 billion if every country that currently allows land-based casinos or sports betting allowed iGaming.
The gambling industry seems to be shrugging off recession concerns, even as many other consumer-reliant companies report a pullback in spending.
According to a CNBC / Generation Lab poll, 9% of people aged 18 to 34 said they spend at least $100 a month in online gambling. Three percent of people spend more than $300 a month on online games.
Sports betting exchange funds, BETZrose 3.5% Wednesday for its third straight daily gain and its best day since January.
DraftKings shares are down about 9% year to date, while Flutter shares are up nearly 15%.
