Shares of major sports betting companies experienced significant declines after Illinois announced a new budget agreement that will substantially increase taxes on some sports bets. DraftKings shares plummeted by up to 14% during trading on Tuesday, while Flutter, the parent company of FanDuel, saw an 8% drop.
The fiscal 2025 budget for Illinois, starting July 1, introduces a graduated tax system for sportsbook operators. This new tax structure varies depending on the adjusted gross revenue generated by the companies.
For operators with less than $30 million in revenue, the tax will increase to 20%, up from the current flat rate of 15%. Companies with revenue exceeding $200 million will face a 40% tax rate, making Illinois’ tax rate second only to New York’s 51%.
This tax system will apply separately to retail and online sports betting for each company. Adjusted gross revenue, as defined by the American Gaming Association, is the total money collected from sports betting minus the winnings paid out.
The new tax structure is expected to impact DraftKings and Flutter the most, with each expected to pay 40% rates based on their market share. On Tuesday, DraftKings’ stock closed at $36.61, down 10%, while Flutter’s shares ended the day at $188.33, a decline of 8%. Penn Entertainment, the operator of ESPNBet, also saw a 6% drop in its shares.
“For DKNG and FanDuel we believe the new progressive tax proposal is roughly in line with the governor’s previously proposed 35% flat rate in February, and the new proposal is more beneficial for smaller operators like [Rush Street Interactive] and [Penn Entertainment],” said Needham & Co. equity analyst Bernie McTernan in a research note sent to clients Tuesday. “Thinking through the long-term implications, we expect fears of higher tax rates broadly to be more of a concern for investors.”
Other operators saw less dramatic stock movements. Rush Street‘s shares rose by 1%, as its casino locations will benefit from lower taxes under the new structure. MGM, operating MGMBet, saw a 2% decrease in its shares.
The sports betting industry had hoped that higher tax revenues might lead to more approvals for iGaming, which includes mobile casino games and is more profitable than sports betting. Taxes and customer acquisition costs are key factors for Wall Street’s valuation of sports betting companies.
McTernan estimated that DraftKings would face an additional $44 million in taxes for the remainder of 2024 if the new rates take effect on July 1. The discussion now shifts to how these companies will manage the increased tax burden.
DraftKings CEO Jason Robins addressed the issue of higher taxes during an earnings call in May, suggesting that the company might lower marketing expenses and reduce customer promotions to offset the higher taxes. “In the end, the cost has to get absorbed by the consumer if the government raises taxes,” Robins said.
Original article: https://www.yogonet.com/international/noticias/2024/05/29/72404-illinois-sports-betting-tax-hike-leads-draftkings-flutter-stocks-to-decline
