DraftKings and Flutter shares fall on proposed tax hike in Illinois

Both DraftKings and Flutter Entertainment – ​​owners of the FanDuel Group – saw their share price fall yesterday (May 28) as the US market reacted negatively to a proposed gambling tax increase in Illinois.

Illinois lawmakers discussed the increase during a 2025 budget session over the weekend. Although the plans have yet to be approved, the potential increase has already hit leading operators like DraftKings and Flutter.

The proposal currently before the courts proposes a tiered betting tax structure to replace the existing 15% flat rate. This would set tax rates at 20-40%, depending on each operator's adjusted gambling turnover (AGR).

Licensed operators with annual revenues of $30 million (£23.5 million/€27.6 million) would pay 20% tax. However, if an operator reports more than $200 million, they would have to pay 40% tax – around 167% more than they currently pay. This would be the second highest tax rate in the US after New York's 51%.

Other limits include a rate of 25% for AGR between $30 million and $50 million, 30% for AGR between $50 million and $100 million, and 35% for AGR between $100 million and $200 million.

Large operators such as DraftKings and FanDuel would be eligible for the highest tax in Illinois. While the plans still need to be approved, the proposed increase hit operators during trading on Tuesday as markets were closed on Monday for Memorial Day in the US.

DraftKings and Flutter share prices fell at close of trading

At yesterday's market open, the impact of the proposals was immediately apparent at DraftKings and Flutter, both of which have a strong presence in Illinois.

Let's start with Flutter: After closing at $204.11 before the weekend, the stock fell to $196.64 within half an hour of trading yesterday – a decline of 3.7%.

Flutter shares continued their downward trend throughout the day, closing at $188.33 in the U.S., down 7.7% from Friday night's close ahead of the long weekend.

Longtime rival DraftKings has a similar trading pattern for Tuesday. DraftKings ended last week with a share price of $40.75, but within an hour of the market opening on Tuesday, the price fell 12.0% to $35.88.

DraftKings recovered somewhat later in the day, but the closing price of $36.61 is still 10.2% below Friday afternoon's price.

What do analysts say about Illinois?

In response to the market moves and the proposed tax increase, Truist analysts say it's unclear how operators will respond. However, analysts did detail how the higher rate could affect current Illinois licensees.

Based on the FY 2023 figures, both FanDuel and DraftKings fall into the 40% tax category. FanDuel, with an AGR of $480 million, would have had to pay an additional $102 million in taxes, while DraftKings, with an AGR of $312 million, would have had to pay an additional $78 million.

For other operators in the state, the tax increase would be less severe but still noticeable. Rush Street Interactive would see a 30% tax rate, meaning another $12 million would be added to the $82 million in annual revenue in fiscal 2023. BetMGM ($43 million in annual revenue), Penn Entertainment ($38 million in annual revenue) and Caesars ($33 million in annual revenue) would all fall into the 20% tax bracket.

While analysts say this could potentially give smaller operators an opportunity to catch up with DraftKings and FanDuel, it could also raise larger concerns – especially if other states follow suit and raise taxes as well.

Lawmakers in several states have considered raising the betting tax over the past year, but so far only Ohio lawmakers have taken action. Lawmakers in Massachusetts last week rejected proposals to increase the tax rate from 20% to 51%.

“The progressive tax system could present an opportunity for smaller players to gain market share at the expense of the two major players while still maintaining relatively low tax rates,” Truist analysts said.

“However, part of the dominance of DraftKings and FanDuel is due to their technical offerings and not just promotions/odds. Then of course there are the larger risks of more states raising their taxes, which may or may not be progressive.

Could a tax increase encourage illegal gambling?

Another point of concern, however, is that this could lead to licensees reducing their offerings in Illinois, which in turn could lead to more players using illegal websites that offer such promotions but are unlicensed and as such are not subject to tax law.

Analysts pointed to a recent statement by the Sports Betting Alliance, a coalition of major providers such as FanDuel, DraftKings and BetMGM, which sharply criticized the planned increase and emphasized that it could push players to illegal providers.

“One aspect of the alliance's response that we share is that we believe states underestimate the extent of the illegal markets with which onshore operators are in fierce competition,” Truist analysts said.

“We recently conducted a survey of online sports betting players which found that 31% of respondents bet overseas, despite 71% of VIPs doing so. This statistic is in line with previous data from Juice Reel which shows that offshore bookmakers account for 18% of the platform's total tracked bets, despite generating 46%/50% of online sports betting turnover/revenue.”

Anna Harden

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