DraftKings Stock Sees Worst Hit in Two Years With Illinois Sports Betting Tax Likely

Written by:
Aaron Goldstein
Published on:
May/28/2024

Key takeaways:

DraftKings stock was hit hard Tuesday due to fears over an increased tax on sports betting in the Land of Lincoln.

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Illinois lawmakers are pushing for a graduated tax structure of up to 40% of gross gambling revenues, up from a flat 15%.  This would largely affect both DraftKings and FanDuel, the largest mobile sportsbook operators in the state and nationwide.

DraftKings stock nosedived 11% and U.S.-listed shares of FanDuel parent Flutter Entertainment tanked 7% in Tuesday trading, moving against the tech-heavy Nasdaq stock index’s modest gain.

The price plunge represents DraftKings’ steepest daily loss since Nov. 2022 while FanDuel's parent company, Flutter, is seeing its worst day since March, propelling it to a four-week low.

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So just how much will the tax increase take away from both company's bottom line?

$101 million to $134 million in 2025 profits is what JPMorgan’s estimates will be lost just at DraftKings.

Needham analyst Bernie McTernan said that a potential higher tax rate in the state has been a focus for investors since it was first proposed months ago.

“Thinking through long-term implications, we expect fears of higher tax rates broadly to be more of a concern for investors,” the analyst wrote in a note to clients. “We expect the debate to shift to how much of the higher taxes can be offset by lower investments in the customer.”

Over the weekend, Illinois senators approved a 2025 budget that includes the tax increase on sports wagering. It would also make Illinois’ maximum tax rate the second-highest behind New York’s 51% rate.

How The New Progressive Tax Structure Would Work

As a progressive tax, the rates paid would be calculated on a sliding scale that breaks down as follows:

    AGR up to $30 million would be taxed at 20%
    AGR from $30 million to $50 million would be taxed at 25%
    AGR from $50 million to $100 million would be taxed at 30%
    AGR from $100 million to $200 million would be taxed at 35%
    AGR above $200 million would be taxed at 40%

Illinois bettors wagered more than $1.2 billion on sports in March alone. In 2023, the state’s operators earned more than $1 billion in revenue.

If passed, Illinois would become only the second state to offer a progressive tax structure.  Arkansas has a 13% flat rate up to $150 million in total gaming revenue, which rises to 20% beyond that point.

Gamblers will ultimately pay the price, most experts believe.  This would be through reduced bonus offerings and less competitive lines.

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