DraftKings Sportsbook New Surcharge Sends Shockwaves Across Industry

DraftKings may soon transform US sports betting, with a new customer fee set to begin in 2025. 

The industry giant has announced that it will begin charging a surcharge on all winnings in four markets. Starting next year, DraftKings Sportsbook will begin charging a 3.2% tax on all customer winnings in New York, Pennsylvania, Illinois, and Vermont.

The controversial move is in response to major tax hikes being added in several markets, with others currently considering doing the same.  

Tax Rates Blamed for Surcharge

The controversial move is in response to major tax hikes being added in several markets, with others currently considering doing the same.  

“In 2021, New York legalized mobile sports betting and its tax rate of 51% made it only the second state in the nation, after Pennsylvania, that has multiple sports betting operators and a tax rate above 20%.” DraftKings shred in a letter to shareholders. “For the next three years, no other states followed suit so there was no major forcing mechanism for DraftKings or any other company to address the potential for higher tax rates becoming more widespread. However, over the past several months, we have seen a shift to tax rates over 20% in certain competitive markets, including a recent significant tax increase in Illinois. We now must consider the prospect that some states may choose to tax the industry at a rate that is in excess of what we can absorb while still generating a reasonable profit margin and remaining competitive against the pervasive illegal market that pays no taxes at all.”

Rival Sportsbooks Yet to Follow DraftKings Lead

As of today, DraftKings remains the only sportsbook planning to add a surcharge. Several of its industry rivals have publicly opposed the idea of an additional tax on winnings, leaving DraftKings on its own. 

The biggest question is what FanDuel will do. The industry leader is the only true competitor to DraftKings, and they could opt to follow suit by adding a surcharge. The operator has lost several battles with states over the last year, which could lead them to follow suit to dissuade other states from implementing significant tax hikes.

Will DraftKings Stick By Surcharge?

The announcement of the surcharge has been a PR nightmare for DraftKings. While the decision only affects four markets, many bettors believe it will likely spread quickly unless they push back. That has led several prominent sports betting personalities attacking DraftKings and average bettors to look for another option.

With other operators refusing to follow DraftKings' lead, the operator is in danger of losing their significant market share. With so many other platforms offering a similar product with larger payouts, there will be little reason for the customer base to stick with it. This could lead to DraftKings backtracking the idea ahead of the planned January 1 launch date.