On a recent earnings call, Flutter Entertainment, which owns FanDuel Sportsbook, said it will not follow DraftKings’ lead and add a surcharge on player winnings in high-tax states.
The DraftKings surcharge would not have affected players in Virginia. Still, FanDuel’s stance could signal to bettors that they would be protected from future surcharges if Virginia lawmakers eventually elected to raise the tax rate on sports wagering.
It was welcome news for the entire US industry, including Virginia sports betting.
The statement was shortly followed by DraftKings changing course and scrapping their plans for a surcharge.
Flutter says there’s other ways to recoup costs from taxes
Analysts attending the Aug. 13 earnings call wasted no time in raising the surcharge question.
Flutter CEO Peter Jackson was crystal clear on the subject.
“We have no plans to charge a surcharge on winners.”
The surcharge proposed by DraftKings would only have occurred in states with a tax rate of greater than 20%. Virginia taxes sports betting at 15%.
Flutter said it knows how to offset additional costs in high-tax states without adding a fee on winnings.
Jackson shared the company’s process in higher tax markets during the earnings call.
“We have lots of tax recognition from operating internationally in high tax locations and our experience is that moderating levels of generosity or indeed reducing local marketing is the best response.
“We often find as well that smaller players might have to increase their prices, which leads to us capturing more share, which provides an offset for us.”
Flutter says higher tax rates might not mean higher tax payments
Flutter executives did caution any states thinking of raising their tax rates on sports betting. The tax percentage might be higher, they said, but that does not always equate to higher tax payments.
Jackson said his company is focused on working with states on a tax rate that makes sense for all parties.
“We do operate in a lot of different markets around the world, and there are plenty of examples where you can highlight where in some cases, they pushed the tax rate up and they actually saw the tax payments decline. These are not straight-forward decisions for these bodies to take because they may not actually achieve what they are aiming for.
“We try to spend as much time as we can educating and sharing our experiences with state bodies to ensure they can achieve the best outcome for themselves and the customers as well.”
That is how things progressed in Virginia, where sports betting is thriving.
Flutter calls out graduated tax structure in Illinois
Despite Flutter stating it will not add a surcharge, that does not mean the company is satisfied with the new graduated tax structure in Illinois. Top-earning operators in the state could pay up to 40% in taxes.
Jackson criticized Illinois lawmakers, saying the state’s new tax model punishes companies that have invested the most into the market.
“I think it is important to recognize there is a happy medium for the tax rate that enables operators to maximize market growth, provide the best experience for customers, and over time maximize revenue for states. Most states are taking a sensible approach to date. I do think though that introducing a graduated tax system punishes those who have invested the most to grow their businesses is wrong.”
While players might not pay for the higher costs in high-tax states through a surcharge on winnings, Flutter, and other sportsbooks, will undoubtingly find ways to recoup losses, which could adversely impact bettors.
