DraftKings CEO on Illinois Tax Hike: ‘Crazy How it All Went Down’

• DraftKings boss calls latest Illinois tax hike “ill conceived”
• Company recently announced it will apply a fee of 50 cents per bet in the state

DraftKing (NASDAQ: DKNG) co-founder and CEO Jason Robins is none too pleased with Illinois’ latest sports betting tax increase, calling it “incredibly ill conceived.”

In a CNBC interview earlier today, Robins ripped the state’s second online sports wagering hike in a year, noting the newly signed law mandates levy of 25 cents on an operator’s first 20 million booked bets and 50 cents thereafter. He says that imperils the operator’s ability to execute and turn a profit in the state and the only way it can it can do that is to pass the cost onto bettors.

It just makes no sense. It was done in the dead of night,” Robins told CNBC. “We had no warning. We actually met with legislative leaders in the weeks before the budget was released and they made no mention of this.”

DraftKings and rival Flutter Entertainment (NYSE: FLUT), the parent of FanDuel, responded to the Illinois tax increase by announcing a fee of 50 cents per bet. Those costs will be absorbed by bettors effective Sept. 1, but both companies pledged to rescind the fees if a solution can be reached with Illinois legislators.

Illinois Tax Increase Will Push Bettors to Black Market, Says Robins

On the surface, Illinois’ latest sports wagering tax increase is issuer-agnostic, but the reality is, as was the case with the progressive tax scheme the state implemented last year, DraftKings and FanDuel will feel the heaviest burden.

“Say somebody wants to make a bet of $1. The actual profit margin on that bet is probably about 10 cents,” detailed Robins. “You’re (an operator) getting charged 50 cents plus a tax on the 10 cents. Even at $10, the math doesn’t really work. You have to pass some of that along to the consumer. Otherwise you can’t take that bet no matter what your size and scale is.”

In Illinois, which has implemented 50 tax increases since Gov. J.B. Pritzker (D) took office in January 2019, Robins said education is needed because some politicians there may not understand that the newest tax increase isn’t applicable to profit or revenue. Rather, it’s applied to gross receipts.

Customer Ultimately Suffers, Says Robins

The consensus among analysts and industry experts is that other states won’t copy Illinois’ per bet tax scheme, but others are likely to lift sports wagering levies. In addition to Illinois, Louisiana and Maryland have done so this year and Massachusetts, New Jersey, and North Carolina could join that group.

Robins noted those higher rates could have unintended consequences such as stifling product innovation and, in the end, its consumers that could suffer.

“It’s (tax increases) going to drive activity to the illegal market that pays no taxes, provides no consumer protections. Easy for minors to get on and bet. All sorts of things we don’t want that was the exact purpose of legalizing and regulating this industry in the first place,” the DraftKings chief executive said to CNBC.