Gambling Twitter blew up last week after DraftKings announced a roughly 3% surcharge on every winning wager in states with multiple operators and tax rates higher than 20%. Set to be implemented in January 2025, the policy will impact bettors in Vermont, Pennsylvania, New York and Illinois.

With the internet abuzz with the news, Jessica Welman, Editor of SBC Americas, invited her former colleague and the man behind the Straight to the Point newsletter, Steve Ruddock, on to the latest episode of iGaming Daily, supported by Optimove to dissect it further. 

Steve started by saying that this decision is “one of the first times I would have trouble defending the action of a particular sportsbook”.

He said: “It’s a decision by them that I think has a lot of layers to it that need to be unpacked. I do not think it’s just a straight we need to make more money off our players, otherwise, they wouldn’t have been so publicly facing about it. There are easier ways to tack on a little bit of extra revenue, through just changing odds or [adding] the surcharge and letting people figure it out for themselves.”

Operators have been rallying against increasing tax rates in recent times.

The Sports Betting Alliance, a coalition of leading sports betting operators, described the recent tax hike in Illinois as an “extremely disappointing decision that will cause real harm”. DraftKings executives also told lawmakers in New York that its 51% tax rate is “untenable” for operators.

Jess and Steve suggested that it is “a tough situation” for operators as the gaming industry has little overheads and “we read all of these giant numbers because handle is what’s reported”, which makes lawmakers believe that operators can afford greater tax rates.

Steve added: “[Operators] have two missions. Mission one is to cry poor and tell lawmakers how much money you don’t have. And mission two is to tell your big numbers to investors and anybody who’s thinking about purchasing stock. 

“So you have this double-edged sword that they’re trying to deal with and I think what’s happening is they were hoping to compartmentalise the investor relations and lawmakers picking up on that.”

In DraftKings Q2 earnings call, CEO Jason Robins suggested that other companies may follow suit with some form of surcharge. So far only one company has responded to this claim, with Rush Street Interactive confirming that they will not implement such a charge.

Responding to this, Steve said that his concern would be that if other companies follow suit it will become the norm to pass on the impact of new policies to customers.

He also spoke about what some of the implications of the surcharge could be as regulators respond to the change as well as what success looks like for DraftKings with the change.

He said: “The issue becomes what are the knock on effects from this. What if a state says you can’t do that, or we’re going to tax your surcharges at 80%. States can do whatever they want. I’m also curious if other states go, well if they’re just going to add a surcharge we’ll just raise taxes because we’re not getting a lot right now. 

“It seems like a good idea and it could very well be a good idea. Two years from now we could just be saying it’s standard but there are a lot of things that could happen. I think it’s one of those things where we probably won’t know how successful it is or what even success looks like for quite some time.”