DraftKings, a leading mobile betting company, is set to introduce a surcharge on winning bets in states with high sports betting tax rates, aiming to enhance its profitability. This decision comes as DraftKings announced its first profitable quarter since going public. The surcharge will be applied in states with tax rates above 20%, including Illinois, New York, Pennsylvania, and Vermont.
CEO and co-founder Jason Robins stated that the company would implement a gaming surcharge on winning bets starting next year. “We decided that the best course of action is to do what really every other industry does — whether it’s hotels, taxis — whatever else you buy generally has some kind of tax,” Robins explained.
This announcement was made in conjunction with the release of DraftKings’ second-quarter earnings, which revealed a revenue of $1.1 billion, aligning with consensus estimates. This quarter marked the company’s first profitable period, with net income of $63.8 million, or 10 cents per share, compared to a net loss of $77.3 million, or 17 cents per share, a year earlier.
The introduction of the surcharge is a strategic response to fears of tax hikes in gaming, which have pressured stocks of betting companies, including DraftKings and its competitor FanDuel. Illinois recently approved a tax hike on sports betting revenue, imposing a 40% levy on companies with the largest adjusted gross revenue. New York and New Hampshire maintain even higher tax rates at 51%.
In a letter to shareholders, Robins noted that the surcharge would be nominal for customers. For instance, in Illinois, it would amount to a low- to mid-single-digit percentage of net winnings. “If you made a $10 bet to win $20, you would pay like 30 cents,” he cited as an example.
DraftKings has raised its revenue guidance to a range of $5.05 billion to $5.25 billion, reflecting 38% to 43% year-over-year growth. However, the company lowered its 2024 adjusted EBITDA guidance to between $340 million and $420 million, down from the previous guidance of $460 million to $540 million.
The company’s recent revenue increase was driven by healthy customer engagement, expansion into new jurisdictions, and the acquisition of the lottery app Jackpocket. Despite the new surcharge, Robins expressed confidence that DraftKings would achieve adjusted EBITDA of $900 million to $1 billion next year, citing strong customer acquisition and performance trends.
With over 30 states now permitting some form of sports wagering, DraftKings is live with mobile sports betting in 25 states and Washington, D.C., and its iGaming division is operational in five states. The company also announced its first $1 billion share repurchase program, reflecting its solid market position and future growth potential.
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