DraftKings Does About-Face on Sports Betting Tax Surcharge

DraftKings Sportsbook, one of our best sports betting sites, caught many by surprise a little less than two weeks ago.

That's when the sports betting behemoth announced it planned to start charging a “gaming tax surcharge” on player winnings in certain markets. 

It turns out that exactly zero of its competitors signaled that they were willing to follow the plan, so DraftKings was basically forced to reverse course on the surcharge this week. You can check out the sports betting behemoth with our DraftKings promo code.

The announcement from America’s #2 sportsbook came Tuesday on X, formerly Twitter:

The original plan

Initially, DraftKings announced a plan for a small surcharge on player winnings in states with the biggest tax rates on operators. That included the New York sports betting market (51% tax rate), the Illinois sports betting market (between 20% and 40% tax rate), the Pennsylvania sports betting market (36% tax rate), and Vermont (31% tax rate).

When the plan was announced a couple of weeks ago, DraftKings called it “fairly nominal to the consumer,” which most industry insiders felt would fall between 3% and 5%.

DraftKings CEO Jason Robins said about high tax rates in the affected states at the time, “There is a solution here. As you know, many revenue-based taxes are passed along to the consumer. The online gaming industry has not pursued this approach in lower tax jurisdictions, but it has in higher tax jurisdictions such as Germany.”

He went on to say during a Quarter 2 earnings call that,  “I think every company has to do what’s best for their own business. I think we believe this is what’s best for us. And I would imagine that, you know, if that’s our calculus, then others would come to the same conclusion."

Essentially, the original plan was to increase the company’s bottom line and its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). According to the company, it believed the surcharge was a way to help increase profits. A statement from the company read,  "we believe additional upside potential exists for DraftKings’ Adjusted EBITDA in 2025 and beyond from this gaming tax surcharge.”

Other sportsbooks don't follow

It was hoped, perhaps expected by DraftKings, that other sportsbooks would follow its lead in terms of taxation on player winnings. That hope never materialized, and competing U.S. sports betting apps went out of their way to announce that a surcharge would not be part of their plans going forward. Some of DraftKings biggest competition quickly came out against the gaming surcharge.

DraftKings also suffered major blowback from social media users about the announcement.

The final straw, seemingly for DraftKings, came Tuesday during the FanDuel quarterly earnings call. FanDuel, like some other major U.S. sportsbooks in the last couple of weeks, including Rush Street Interactive and PENN Entertainment, operator of ESPN BET, forcefully rejected such a surcharge model for its customers—and they were not shy about it.

So, DraftKings is back to the drawing board for a plan to help its bottom line. Company brass hopes that users will forget about its attempt to extract more profits from them.