DraftKings Scraps Tax Surcharge Plan as FanDuel’s Flutter Shines with Strong Earnings

DraftKings has abandoned its plan to introduce a surcharge on customers in states with high sports betting taxes, following FanDuel’s announcement that it would not implement a similar fee despite Illinois’ tax hike. This reversal comes amid Flutter’s impressive second-quarter earnings report, which saw its shares rise about 8% on Wednesday.

FanDuel’s parent company, Flutter, dazzled Wall Street with its revenue growth and market share gains. The company’s decision to avoid surcharges and focus on localized marketing and promotions is expected to have a $40 million net impact in the latter half of 2024. Flutter’s CEO, Peter Jackson, views the Illinois tax increase as a potential competitive advantage, suggesting it could drive market share gains as smaller operators might raise their prices.

DraftKings initially announced a tax surcharge on customer winnings in high-tax states such as Illinois, New York, Pennsylvania, and Vermont. However, following backlash and a 5% drop in shares after FanDuel’s earnings release, DraftKings decided to scrap the surcharge. The company cited customer feedback as the reason for the reversal and expressed its commitment to providing the best value to its users.

Gaming analysts have reacted positively to DraftKings’ decision, noting that removing the surcharge could mitigate reputational risks and market share concerns. Piper Sandler analyst Matt Farrell and Truist analyst Barry Jonas both highlighted the benefits of the move, though Jonas also questioned how DraftKings will offset the financial impact.

FanDuel, which holds a 47% market share in U.S. sports betting and 25% in iGaming, continues to lead in both sectors. The broader gambling industry remains resilient despite economic uncertainties, with online gambling spending still robust among younger demographics.

The sports betting exchange-traded fund (BETZ) also saw gains, reflecting a positive trend in the sector. While DraftKings’ stock is down 9% year-to-date, Flutter’s shares have increased nearly 15%.