DraftKings will tax winning bets in some states to boost profits

Mobile Gambling Giant DraftKings is planning to impose a tax on consumers in states with the highest sports betting tax rates as the company looks to boost profits.

The company announced Thursday that starting next year it will impose a gaming surcharge on winning bets in states with multiple gaming operators and tax rates above 20%. Those states include Illinois, New York, Pennsylvania and Vermont.

“We think the best thing to do is to do it like every other industry — whether it’s hotels or taxis — whatever you buy, you’re generally subject to some kind of tax,” Jason Robins, CEO and co-founder of DraftKings, told CNBC.

The news comes as the sportsbook operator released its Second quarter earningsIt was the first time the company had posted a profit since going public. DraftKings reported revenue of $1.1 billion, roughly in line with consensus expectations, according to the London Stock Exchange.

Concerns about higher taxes on the gambling industry have weighed on DraftKings’ stock, as well as other gambling companies, e.g. Fan Duel In May, Illinois approved a higher tax rate on sports betting revenue. The sliding scale tax would impose a 40% tax on companies with the highest adjusted gross revenue. New York and New Hampshire both tax sportsbooks at 51%.

Robbins said in a letter to shareholders Thursday that the new surcharges will be nominal for customers. In Illinois, for example, the surcharge will be a low- to mid-single-digit percentage of net profit.

Robbins gave an example, saying: “If you bet $10 and want to win $20, you only have to pay 30 cents.”

DraftKings is believed to be the first operator in the U.S. to tax gamblers’ winnings. Robbins said he thought about it and hoped it would prompt states to reconsider tax rates.

He added: “I do think that if states start to realize that above a certain level we can’t invest in our product and our customer experience the way we need to … that might make them look at it differently.”

He’s also considering customer reaction. “We’re not going to hide it,” Robbins said. “Obviously if they don’t like it we’re going to see some customers leave, as well as player betting activity.”

Robbins said DraftKings has not factored the new tax into its guidance.

The company raised its revenue outlook to a range of $5.05 billion to $5.25 billion, up from a previous range of $4.8 billion to $5 billion. The updated outlook equates to year-over-year growth of 38% to 43%.

But the sports betting giant lowered its 2024 adjusted EBITDA outlook to between $340 million and $420 million, from a previous range of $460 million to $540 million.

The company reported its first second-quarter profit, with net income of $63.8 million, or 10 cents a share, for the three months ended June 30, compared with a net loss of $77.3 million, or 17 cents a share, in the same period last year.

Analysts polled by the London Stock Exchange expected a loss of 1 cent per share for the quarter.

Revenue rose to $1.1 billion, up 26% from $874.9 million a year earlier. The company said the revenue growth was driven by continued good customer engagement, expansion into new jurisdictions and the acquisition of lottery app Jackpocket.

“The stellar performance we’re seeing in customer acquisition, the launch in Washington, D.C., our expectation for Jackpocket to be EBITDA positive next year, and the underlying trends in our existing customers and our performance in handles, all of that should offset the impact of the Illinois tax increase next year,” Robbins said on the company’s earnings call. “So even if we don’t get any benefit from that charge, we’re still looking at $900 million to $1 billion of adjusted EBITDA next year.”

Currently more than 30 states allow Some form of sports betting, many of which allow mobile and online betting. DraftKings offers mobile sports betting in 25 states and Washington, D.C. The company’s iGaming division operates in five states.

The company said that so far this year, 10 jurisdictions have introduced legislation to legalize mobile sports betting or proposed bills that could lead to a referendum on mobile sports betting in the upcoming election.

DraftKings also announced its first $1 billion stock buyback program. The company has a market value of about $14 billion.