US Operators “shot themselves in the foot” in the debate regarding tax rates, according to the Legal Sports Report’s (LSR) Eric Ramsey.

Appearing on the LSR’s Sports Betting News Today podcast, Ramsey explained that operators caught the attention of legislators by “boasting to investors” about the potential of the US betting market.

He said: “This is one area in which operators did shoot themselves in the foot over the course of the past five years by boasting to investors about the potential of this market and then at the same time going to state legislature and talking about how they are unable to make money in the business. That’s hard for a lawmaker to hear.

“It’s also worth considering that a lawmaker’s duty to the state is to maximize state revenue. Their entire job is to capitalize on these businesses to the extent they’re able to. So, in short, I don’t fault the lawmakers for the way they’ve handled the rates in New York, Pennsylvania, Illinois or anywhere else.”

The debate between operators and legislators around tax rates in the US has been raging on for several years. New York has the highest tax rate, 51%, while Illinois recently hiked its effective tax rate to 40% for the highest-earning operators in the state. 

Adam Candee, Managing Editor at LSR, said that he lacked sympathy for operators regarding the tax rates in locations such as New York as they agreed to the 51% tax rate during the process of regulating the state.

He added: “That was their time to say there’s no way for us to make money if this is the way you want to tax this thing. When this was a new thing, and when they were racing through state legislators to get it passed, you found legislators who really didn’t understand it at all well. They were being fed information by lobbyists saying here’s the tax rate in Nevada where it’s 13.25% and they went along with it. 

“Well, legislators have got smarter. They said hold if you are going to tell us about profit why aren’t we taxing this at a higher rate. So I’m not unsympathetic to the businesses coming in and saying this is a lot and we need to find a way to deal with it. But I don’t know that I would necessarily look at the legislators as being the enemies in this case, because there were ways to push back on this before we got to the point we are now.”

In response to the rising tax rates, DraftKings announced plans to include a small surcharge on winning bets in the four states with the highest tax rates before rowing back on this policy, citing feedback from customers.

Other operators, such as FanDuel and Rush Street, came out against the surcharge, however, the show’s host, Matt Brown, predicted that if the tax rate trends continue it won’t be long until the costs “trickle down” to the customer. 

“I look at this from a bettor’s standpoint and you just know how it eventually is going. Whether it is a DraftKings surcharge or adding a nickel or something extra. There’s not going to be this whole we’ll just accept the extra costs,” he explained. 

“For me, I look at these states and I have no problem charging a higher tax rate, I have a problem with them charging what I would consider to be an egregious tax rate. That really does affect the market and the customer overall. It will be passed on and we will see books fold and not even get involved in certain states.”