BetMGM, Caesars Won’t Follow Rivals with Illinois Surcharge, Says Analyst

• FanDuel, then DraftKings announced transaction fees in the state
• BetMGM, Caesars probably won’t follow suit, says analyst

This week, FanDuel and then DraftKings (NASDAQ: DKNG) announced levies of 50 cents per wager in Illinois in response to the state’s latest online sports betting tax increase, but some other operators appear unlikely to play along.

In a report to clients today, Truist Securities analyst Barry Jonas notes MGM Resorts International (NYSE: MGM), which owns half of BetMGM, and Caesars Sportsbook parent Caesars Entertainment (NASDAQ: CZR) could leverage the latest Illinois tax hike for growth in the sixth-largest state.

MGM and CZR didn’t immediately appear to be looking to follow FLUT (and now DKNG) in implementing surcharges. We do wonder if this could be an opportunity for either/both to gain market share,” observes Jonas.

Under the new Illinois tax plan, operators would be subjected to a levy of 25 cents per sports bet up to the first 20 million wagers placed. That figure doubles to 50 cents per wager after 20 million bets are exceeded at a particular online sportsbook. As is the case with the graduated tax plan implemented last year in the state, Flutter Entertainment’s (NYSE: FLUT) FanDuel and DraftKings will be the most heavily penalized under the new plan.

Surcharge Folly Could Be Opportunity for BetMGM, Caesars

On Monday, FanDuel announced that starting Sept. 1, it will apply a fee of 50 cents to every online sports wager placed in Illinois in response to the new tax. DraftKings made the same announcement yesterday.

Recent history indicates DraftKings and FanDuel may find no sympathy from rivals in the Land of Lincoln. Last year, DraftKings announced a plan to add transaction fees in Illinois, New York, Pennsylvania, and Vermont, but ultimately abandoned that effort because no other sportsbook went along.

DraftKings and FanDuel both said they will eliminate the surcharge if the state works with them on more accommodative tax solutions, but there are no guarantees that will happen. That could leave the operators on “Surcharge Island” with rivals potentially capitalizing on what could prove to be a public relations gaffe.

Small Impact to BetMGM, Caesars Earnings

In a note out earlier this month, Jonas said the new Illinois tax scheme could pinch BetMGM’s Illinois earnings by $4 million with Chicago-based Rush Street Interactive (NYSE: RSI) potentially taking a $3.25 million hit. Those estimations are well below the $40 million to $45 million and $35 million to $40 million headwinds to guidance FanDuel and DraftKings could suffer in the state.

Jonas didn’t mention Caesars in that coverage, but the analyst doesn’t expect much in terms of earnings adversity for either BetMGM or Caesars Sportsbook in Illinois by way of the tax increase.

“Both MGM and CZR see the recently announced Illinois tax increase as having an immaterial impact on their respective digital businesses as the tax structure primarily targets the larger players,” he wrote.