DraftKings Bets on Surcharge in High-Tax States, Stock Falls

DraftKings Inc., a leader in the online sports-betting business, reported second-quarter profit that missed Wall Street estimates and said it plans to implement surcharges for customers in high-tax states like New York and Illinois.

The surcharge will roll out Jan. 1 in states including Pennsylvania and Vermont, the company said in a presentation Friday. It will be levied only on winning bets and identified as such on the company’s app. It should lead to higher profit in 2025, the company said.

DraftKings shares fell as much as 13% on Friday, the most since late May. Truist Securities analyst Barry Jonas suggested competitors might not follow the company’s lead, keeping their payouts higher as a way to gain market share.

Illinois recently raised the tax on sports bets to 40% from 15% under a bill signed by Governor J.B. Pritzker. 

In an interview, DraftKings Chief Executive Officer Jason Robins said the surcharge is an experiment and “the good news is you can always roll it back if it doesn’t work.” 

One outcome could be that DraftKings customers see the charges and complain to legislators about their states’ high taxes, he said.

“It’s certainly possible,” Robins said. “That’s not the primary reason we’re doing it.”

Revenue in the second quarter rose to $1.1 billion, the company said Thursday, in line with analysts’ estimates. Adjusted earnings before interest, taxes, depreciation and amortization came to $128 million, compared with estimates of $133.2 million. 

Monthly unique payers grew to 3.1 million, compared with estimates of 2.6 million. New promotions brought in more customers than the company expected.

DraftKings raised its 2024 revenue guidance, predicting sales of up to $5.25 billion, while lowering its forecast for adjusted earnings to as much as $420 million from $540 million previously. 

Profit has been impacted by higher taxes, new customer acquisition expenses and expenses associated with the launch in a new market, the District of Columbia, Robins said.

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