DraftKings says it needs to collect more revenue in states with high sports betting tax rates. Maryland is certainly not one of those states.
The Old Line’s relatively low 15% rate has kept it off DraftKings’ list of states where it will implement a surcharge beginning in 2025.
At least for now.
The main concerns for Maryland bettors moving forward are the state raising its tax rate on sports wagering or other sportsbooks following DraftKings’ lead in charging a fee on winnings.
DraftKings sets surcharge bar at 20%
With nearly a dozen operators serving the Maryland sports betting market, bettors have plenty of options. While lawmakers have not officially discussed raising the tax rate on sportsbooks, the possibility always exists. Maryland legislators are certainly watching what happens in states that have or are considering raising their rates.
DraftKings issued its new surcharge in the four states with the highest taxes on sports betting:
- New York: 51%
- Pennsylvania: 36%
- Vermont: 31%
- Illinois: 40%
The Boston-based company issued the extra cost after Illinois functionally doubled its tax rate from 20% to 40%. It implemented a sliding scale between 20%-40% based on revenue with $200 million annual revenue as the top end of the tax scale.
Since DraftKings dominates the market, they will certainly pay the highest rate possible. DraftKings executives said its surcharge in those four states will bring their national tax rate to about 20%. They will implement the surcharge on any state that taxes its sportsbooks more than 20%.
It should be noted that DraftKings has not said what its surcharge percentage will be. It gave a range between 2% and 5%, suggesting it will implement different rates in each of the four states.
Why did DraftKings add the surcharge?
DraftKings said it will place the surcharge only on winning bets in the four states. The company said it needs to increase earnings.
“We believe additional upside potential exists for DraftKings’ Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2025 and beyond from this gaming surcharge.”
But most see the move as a response to higher tax rates on sports betting or as a deterrent to other states from raising their rates.
DraftKings said the impact should be “fairly minimal” on its customers.
“In Illinois, for example, it would amount to a low to mid single-digit percentage of the net winnings a customer would have previously received.”
So, a winning bet that would net $10 might end up being $9.70 with the new surcharge. The end result, though, is worse odds for the bettor. DraftKings is essentially moving some of its tax bill on to its customers to pay.
How could this end?
DraftKings is banking on its customers not scoffing at the surcharge. It hopes other sportsbooks join its crusade against what it believes are taxes that are too high.
Ultimately, it would like to see the rates lowered in the states it has “called out.”
It will be interesting to see what FanDuel does. Along with DraftKings, the two own the majority of the sports betting market in every state they operate in.
If other sportsbooks do join with DraftKings on implementing surcharges, they could look to do the same in other states, like in Maryland.
Worst case for DraftKings is no one follows its lead. Its customers in those states jump ship, and its overall revenue takes a massive hit.
