FanDuel Deals Blow to DraftKings, Says No to Surcharge

***UPDATE: Soon after Flutter said it will not proceed with a surcharge, DraftKings announced it is reversing course and will not tax winning sports bets in Illinois, New York, Pennsylvania, and Vermont. DraftKings said the move was made in response to listening to its customers.***

In a clear blow to rival DraftKings (NASDAQ: DKNG), FanDuel parent Flutter Entertainment (NYSE: FLUT) announced today it has no plans to implement levies on winning sports bets in select high-tax states.

Dublin-based Flutter reported second-quarter results this afternoon — 12 days after DraftKings said it will charge a small surcharge on winning sports wagers in Illinois, New York, Pennsylvania, and Vermont starting Jan. 1, 2025. Dashing the hopes of some DraftKings investors, Flutter CEO Peter Jackson said the company won’t play along.

We often find as well that smaller players may also have to increase their prices, which leads to us capturing more share , which provides an offset for us,” said Jackson in response to analyst question on a conference call. “And so we think that moderating the level of reducing local marketing is the best customer options and we have no plans to introduce a surcharge on winners.”

Investor reaction to the news was clear. At this writing, shares of Flutter were higher by 10% in after-hours trading while DraftKings was down 4%. Year-to-date, the FanDuel parent is up 6.92% while rival DraftKings is down 10.81%.

Welcome to Surcharge Island DraftKings

Following DraftKings’ Aug. 1 announcement about the surcharge, which the company told analysts and investors could be accretive to 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA), there was ample speculation among some market participants that the plan could be validated by FanDuel following suit. Some so-called experts even believed that was likely.

Flutter joined Rush Street Interactive (NYSE: RSI) as the operators overtly saying they will not levy winning wagers in high-tax states. Likewise, BetMGM and Caesars Sportsbook parent Caesars Entertainment (NASDAQ: CZR) recently delivered financial results and didn’t mention plans for a surcharge.

Last week, ESPN Bet owner Penn Entertainment (NASDAQ: PENN) said it’s monitoring the surcharge situation, neither endorsing nor deriding the idea. That’s the closest a gaming company has come to siding with DraftKings, but it’s a stretch at best.

Flutter Bashes Illinois Tax Scheme

Jackson told analysts that he believes the bulk of the state’s in which FanDuel operates have “sensible” approaches to taxing regulated sports betting, though he added he’s not a fan of the graduated tax scheme recently implemented in Illinois.

Starting in July, Illinois instituted a tax plan that mandates high revenue sportsbook operators such as DraftKings and FanDuel pay significantly higher rates than smaller counterparts. As a result, the effective rate for those two more than doubled in that state.

“I do think instituting a graduated tax system that punishes those who’ve invested the most to grow their businesses is wrong,” said Jackson in response to an analyst question. “I think it will drive customers to offshore operators or potentially to onshore operators who offering unregulated, untaxed prop parlays under the guise of sweepstakes.”