DraftKings, Flutter Credit Ratings Safe Despite Tax Hikes

• Higher sports betting taxes unlikely to harm DraftKings, Flutter credit profiles
• Operators’ ratings reflect sector momentum, says Fitch

The corporate credit profiles of Flutter Entertainment (NYSE: FLUT) and DraftKings (NASDAQ: DKNG) are unlikely to suffer at the hands of recent state-level tax increases on online sports betting, according to Fitch Ratings.

Fitch rates FanDuel parent Flutter BBB- — the lowest investment grade — and DraftKings one notch into junk territory at BB+. The ratings agency notes that even against the backdrop of rising taxes in some states, the sports wagering industry’s “conservative financial structures and robust free cash flow profile” are supportive of  solid credit grades.

As was the case with the 2024 increase implemented by Illinois, the state’s latest sports wagering levy hike puts added burden on FanDuel and DraftKings. The country’s two biggest internet sportsbooks have responded by rolling out per wager transaction fees of 50 cents in the state, though both operators said they will rescind those surcharges, due to go into effect on Sept. 1, if Illinois alters the per bet tax plan.

More States Considering OSB Tax Increases

Within in the industry, the consensus is that other states are unlikely to copy the Illinois model of applying taxes to each bet booked by operators, but it is clear other states are considering higher sports wagering taxes with Massachusetts, New Jersey, and North Carolina potentially next up.

New Jersey, the third largest state by commercial sports betting revenue, could lift its rate from 13% of adjusted gross revenue (AGR) to 25% of AGR. Fitch acknowledges that’s significant given the state’s prominence in the US gaming landscape, but the research firm adds one state alone raising sports wagering taxes won’t imperil the credit ratings of DraftKings and Flutter.

Operators could attempt to pass on higher taxes through less favorable odds or wager surcharges but may risk losing market share to competitors engaging in promotional pricing, illegal forms of sports betting, or alternative forms of betting such as prediction markets,” according to Fitch.

The credit evaluator points out that sports wagering legalization, which has been largely disappointing in scope dating back to last year, could perk up if the 20 states that currently don’t permit mobile betting or sports wagering in any form tap into it as an avenue for bolstering state coffers.

Assessing DraftKings, Flutter Leverage Situations

Fitch points out that DraftKings earnings before interest, taxes, depreciation, and amortization (EBITDA) margins could improve to 23% by 2027 while Flutter, the larger of the two operators, could grow those margins by 20% by the same year.

The ratings agency adds DraftKings has the wiggle room to take on more leverage and Flutter can do the same, though on a more limited basis due to its share repurchase plan. Rival BetMGM can continue self-funding, meaning the joint venture won’t adversely affect the credit ratings of owners Entain and MGM Resorts International (NYSE: MGM).

“The continued strong momentum in the U.S. online gaming market continue to support online gaming operators’ credit profiles,” concludes Fitch. “The American Gaming Association reported continued record levels of revenue in online gaming, with Q1 2025 Sports Betting Gross Gaming Revenue (GGR) growth of 13.6% year-over-year and iGaming GGR of 27.3%, representing combined growth of 15.3%.”