Getty Image / Budrul Chukrut/SOPA Images/LightRocket
DraftKings announced this week the company is planning to introduce a tax on winning bets in order to remain competitive in the market. This announcement has been extremely ill received by the sports betting public who don’t think DraftKings is entitled to a share of their winnings when the company is already making money hand over fist off of losing bets.
The proposed tax on winning bets wouldn’t be rolled out in every state where DraftKings operates. They stated that it would be rolled out in states where DraftKings faces competition from multiple sportsbooks and where the tax rate on sports betting/bettors is above 20%. Those states would include Illinois, New York, Pennsylvania and Vermont.
With the proposed DraftKings winnings tax, the sports betting behemoth would not only be raking in money off of every losing bet they would also be able to take a share of winnings as well. This, naturally, does not sit well with DraftKings customers. DraftKings CEO Jason Robins addressed this, here’s his full quote (via Ryan Butler on X):
“Obviously, some people might just react negatively to the idea of being charged at all, but it’s really fairly nominal and it makes a huge difference in our ability to make a reasonable margin and also, more importantly, to compete with the illegal market, which pays no taxes and has the ability to invest 100% of their revenue into product and other things.”
“So for us to be able to be competitive with the illegal market and invest properly in product and customer experience in a state that has a very high tax rate, we feel it is an important step that consumers will ultimately understand if they feel the product and experience is better, then they’d rather pay for that than somewhere else that maybe doesn’t have a strong a product.”
On X, formerly Twitter, the statement was not well received. People likened the charging of winners to being like a “service fee” or a “tip.” Harping on the word ‘nominal’ in the explanation/justification has really rubbed people wrong. But look at what a ‘nominal’ tax on winnings actually does to a bet:
The coming DraftKings winning bet surcharge tax rate will vary by state, but in an example $DKNG gave in Illinois with a winning $10 bet at +100, the bettor received back $19.68 instead of $20 due to the tax. That would roughly translate to an odds shift from +100 to -104.
— Ryan Butler (@ButlerBets) August 1, 2024
There are a few different ways to look at this, to be sure. DraftKings says they are facing competition from illegal sportsbooks and they’ve decided a tax on winnings will be a way to combat that. Somehow, their margins aren’t able to account for their need to innovate.
I, as a customer, see this differently. From my standpoint, DraftKings cannot afford the shiny new thing it wants and they are demanding customers pay more in order to make that happen. There was a picture of a tweet on Reddit earlier today that sums this up. The person wrote “I don’t get the argument that employers can’t afford to pay $15/yr. That’s the value of labor. If I can’t afford a Porsche, then I can’t get a Porsche. I don’t get to demand a discount on Porsches. If a business can’t afford labor, that’s on the business, not the labor market.”
While it’s not exactly apples-to-apples here, it gets boiled down to DraftKings wanting to do things it can’t. That is their problem. And when the DraftKings Tax potentially leads a massive exodus of bettors that will be an even larger problem. But only time will tell how many gamblers choose to leave DK over this.