Bettors in high-tax states such as Illinois, New York, Vermont, and Pennsylvania were relieved on Tuesday when FanDuel’s parent company announced that it would not impose a surcharge on winning bets. This decision comes as a significant relief for many, as surcharges could have meant a reduction in their winnings due to the additional costs imposed by the sportsbook.
DraftKings, which had initially planned to introduce a similar surcharge, reversed its stance following FanDuel’s announcement. The surcharge would have deducted a percentage from bettors’ winnings, impacting their overall returns. This move by DraftKings was seen as a response to the financial pressures of operating in high-tax states, where the gaming tax burden is notably heavier.
However, bettors should not assume that this development signals the end of challenges related to high gaming taxes. Although surcharges are off the table, sportsbooks are likely to implement alternative strategies to offset these increased costs. One confirmed strategy is the reduction of promotions and bonuses for customers in high-tax states. During its earnings call on Tuesday, FanDuel mentioned that it would counteract 50% of the higher gaming tax in Illinois through “locally optimized promotional and marketing spend.” This essentially means that bettors in these areas can expect a decline in the number and attractiveness of promotional offers such as sign-up bonuses, profit boosts, and “no sweat bets”—incentives that allow customers to place bets with reduced financial risk.
DraftKings had also previously hinted at similar cost-reducing measures before reversing its surcharge decision. CEO Jason Robins suggested that if states impose high taxes, it could impact the company’s ability to invest in its product and customer experience. He implied that if taxes become prohibitively high, it might force sportsbooks to adjust their business strategies, potentially leading to a decrease in the quality of their offerings or a shift in their pricing structures.
Instead of implementing surcharges, sportsbooks may explore other methods to recover the increased tax costs. One potential approach is to raise the vig, or the bookmaker’s margin, which could result in worse odds for bettors. This would ensure that the sportsbook retains a larger portion of each bet, offsetting the higher operational costs imposed by state taxes.
Ideally, sportsbooks would absorb these additional costs without passing them on to their customers. However, the prevailing trend indicates that companies are reluctant to do so, as they seek to protect their profit margins in the face of mounting financial pressures.
In summary, while the decision by FanDuel and DraftKings to forgo surcharges is a temporary victory for bettors in high-tax states, the financial burden of operating in these regions is likely to be shifted in other ways. Bettors may face fewer promotions, less attractive odds, and other indirect cost increases as sportsbooks adjust their strategies to navigate the complex landscape of gaming taxes.