After major pushback, DraftKings is abandoning their planned surcharge in high-tax states

Earlier this month, DraftKings announced they would add a surcharge in high-tax states like Illinois and New York. This news broke ahead of DraftKings’ Q2 earnings call. DraftKings said that customers can expect this fee to be implemented on January 1, 2025. While DraftKings has angered customers with this surcharge, other sportsbooks are taking the right approach. FanDuel announced that their users will not be subject to the extra tax that DraftKings is adding. FanDuel is owned and operated by Flutter Entertainment. Their CEO Peter Jackson confirmed this news of no additional surcharge tax at Flutter’s Q2 earnings call on Tuesday. Roughly a few hours later, DraftKings announced they are abandoning the surcharge tax that was introduced at the beginning of August. A DraftKings spokesperson noted that the company listens to their customers and saw the negative feedback for the surcharge. Not having the surcharge tax is beneficial for DraftKings to continue to be successful.

What kind of impact did FanDuel have on DraftKings dropping their surcharge?

After DraftKings announced their surcharge at the beginning of August, many customers were outraged. Loyal DraftKings customers felt betrayed that the company would even think about adding another layer of tax. Once DraftKings made their announcement, the negative feedback started to pour in. Additionally, three other US sportsbooks including FanDuel announced they would not be implementing a surcharge tax on their customers. If DraftKings kept their surcharge tax in place for next year, several major customers would have looked to switch sportsbooks. DraftKings could have made an estimated extra $220 million in revenue if the surcharge tax would have stayed. When FanDuel made the announcement they would not have a surcharge tax, DraftKings’ stock shares dropped 4.77%. 

While Flutter will not have a surcharge added, there are still taxes to be paid in other states. In Illinois for example, Flutter expects a $50 million impact on sports betting in 2024. This means Flutter will have to pay around 40% on some revenue in the state. Higher than the previous rate of 15%. According to their Q2 numbers, FanDuel reported a 27% growth in customers. That helped them reach 3.47 million average customers in Q2. In comparison, DraftKings saw 3.1 million average customers. That was up 47% year-over-year.