After backlash from customers and a distinct lack of support from other operators, DraftKings has U-turned on its plans to add a surcharge to winning bets in high-tax states.

The company announced the news on Tuesday (13 August), just two weeks after first revealing plans to levy a roughly 3-5% surcharge on winning bets in New York, Pennsylvania, Vermont and Illinois. 

On the latest episode of iGaming Daily, supported by Optimove, Jessica Welman, Editor of SBC Americas, was joined by SBC’s Media Manager, Charlie Horner, to discuss the change of heart by DraftKings, as well as some fiery comments by Flutter’s CEO Peter Jackson during the operator’s second-quarter earnings call. 

Charlie started by calling DraftKings’ decision to pass on some of its tax bills as “egregious” and something that was never “going to land properly”.

He added: “I understand why they might have those kinds of conversations because tax rates in these states are high, and in certain states like Illinois they are getting higher. Sportsbooks didn’t sign up for those high tax rates in those states and they feel like they have to do something to overcome those increasing costs and taxes. 

“I think you have to read the room on this one and they’ve got to do things in a way that doesn’t impact the customer. It’s clear that they don’t want to be impacted by this, especially when it’s not fair compared to players in other states. If you’re in North Carolina and the tax rates are lower, why are you getting a surcharge or worse pricing than those in Illinois.”

A range of operators were asked about DraftKings’ plans during earnings calls and executives were quick to assure customers that they didn’t have similar plans. 

In response to rising taxes, operators such as Rush Street Interactive have confirmed that they plan to cut marketing and operating expenses to cut costs and improve profitability in high-tax states. 

On the changes, Jess said: “Up to now you have not seen too much disparity in how bettors are treated from state to state. What we have heard is most companies have concluded they’re going to have to curb promo spend so you may see slightly less generous offers in New York, Pennsylvania and Illinois. 

“It won’t be the overt surcharge and if you’ve already signed up and gotten your offer, you may not be getting as many offers as your friends in Kentucky or Indiana. There will be some impact and I think we have finally reached the point where you’re going to see some differences.”

After a short break, the show’s attention then turned to some fiery comments made by Flutter’s CEO Peter Jackson. During the firm’s earning call, Jackson hit out at the recent tax hike in Illinois, describing the move as driving customers to offshore and unregulated operators. 

Jackson added that based on data from other states he believes that the tax increase will have a greater impact on smaller operators in Illinois, rather than the Flutter-owned FanDuel and DraftKings, the two operators with the biggest market share in the state.

“I thought it was fascinating that they’d modelled this on other markets where there were similar tax rates,” explained Charlie. “I think it goes to something Adam Greenblatt of BetMGM told the SBC Leaders magazine where he was predicting that the smaller operators in the US are basically on numbered days in terms of how long they can keep on going. 

“We’ve seen a number of markets exits over the last 18 months and I guess Jackson and Greenblatt have predicted this is going to carry on in the future where there are what they would label unsustainable tax rates.”