DraftKings plans to charge a fee on winnings from sports bets made in four states starting in 2025. These four states—Pennsylvania, New York, Illinois, and Vermont—have the highest tax rates on sports betting in the US.
DraftKings said it is implementing the surcharge to improve its earnings moving forward. Most see the move as a way to pressure the states to lower their tax rates.
Either way, the surcharge DraftKings plans to implement would not impact Missouri sports betting if residents vote to legalize it in November.
DraftKings likely hoping other sportsbooks follow its lead
DraftKings could also be using its new surcharge to keep other states from raising their tax rates on sports betting. Missouri’s neighbor, Illinois, recently implemented a new graduated rate scale, with its base percentage rising from 15% to 20%. The result for the two most popular sportsbooks in the state, DraftKings and FanDuel, is a new tax rate of 40%.
Where things could go off the rails for DraftKings is if no other sportsbook joins its crusade. For instance, BetRivers has already said it will not institute a surcharge.
Major sportsbooks like FanDuel, Caesars, and BetMGM could see the move as a chance to poach customers from DraftKings in the four states and beyond. Essentially, the surcharge creates worse odds for DraftKings customers.
And it is unlikely to sway lawmakers in the four states to lower their rates based on one sportsbook’s added fees.
Discussions have also been held on whether DraftKings can legally add the fee. Of note, Jefferies Equity Research has reported that 60% of DraftKings investors aren’t on board with the new plan.
Low proposed tax rate in Missouri should keep out surcharges
There are several reasons why DraftKings’ new surcharge should not concern Missouri sports betters.
First off, sports betting isn’t even legal in Missouri. The ballot initiative put together by Winning for Missouri Education is still awaiting approval from the Secretary of State’s Office to appear on November’s ballot. An announcement will come in less than a week.
If the referendum to legalize sports betting is certified, a majority of Missouri voters must then approve it. With mixed results from polls, passage isn’t guaranteed.
Should it pass, Missouri’s tax rate would be just 10%. That’s well below the tier of rates charged by states with legal sports betting. New York taxes sportsbooks at 51%, while both Pennsylvania (36%) and Vermont (31%) have tax rates above 30%.
It should also be noted that the ballot initiative in Missouri has received significant financial backing from both FanDuel and DraftKings.
