DraftKings follows FanDuel in introducing Illinois transaction fee

DraftKings has become the second major operator to announce a new transaction fee for all sports wagers in Illinois in response to the state introducing a per-wager surcharge on sports betting.

Customers wagering through the DraftKings Sportsbook in Illinois will face a $0.50 fee on mobile and online bets. The operator confirmed that this fee will come into effect from 1 September.

As with FanDuel, which led the way in introducing the fee, DraftKings CEO Jason Robins said it was a direct response to the levy imposed on individual bets in the recently passed Illinois state budget.

A previous attempt to mitigate Illinois’ 2024 tax hike, which increased DraftKings’ tax burden to 40% of GGR, flamed out quickly last year. The operator planned to add a surcharge on player winnings in four states with tax rates above 20%, only to quickly row back on the plans after no other operator followed suit.

“We’re disappointed Illinois policymakers have chosen to more than triple our tax rate over the past two years,” Robins said following the new surcharge’s announcement.

Robins: Illinois gives illegal market a shot in the arm

He raised concerns about the levy’s impact on legal gambling in the state. He urged lawmakers to rethink the decision, adding that if the tax increase were to be reversed, DraftKings would remove its transaction fee.

“We’re very concerned about what this will do to the legal, regulated industry,” he said. “Illinois continues to fuel the rapidly growing illegal industry, which pays no taxes or fees and provides none of the consumer protections that regulated operators offer.”

Illinois increasing the tax burden on operators

Through the budget approved by Illinois lawmakers on 31 May, operators will pay a tax of $0.25 on wagers up to the first $20 million in handle.

However, above this threshold licensees will instead pay a $0.50 tax for each bet, with the biggest operators again expected to feel the brunt, having to pay the charge in addition to revenue-related tax. Notably, the DraftKings and FanDuel surcharges don’t split out the rate for bets making up the first $20 million in handle.

According to estimates from JMP Securities, DraftKings would have been hit with a gross tax impact of $79 million had the tax applied to operators on a trailing 12-month basis.

As a result, DraftKings is now looking to pass the charge onto its customers, in a similar fashion to other industries such as the hotel and airline sectors.

Flutter and its FanDuel brand blinked first earlier this week, announcing it would introduce the $0.50 transaction fee on 1 September.

DraftKings has now followed suit with its longtime rival, with which it holds a combined market share of at least 75% in Illinois.

This is the state’s second tax increase on the industry in a year. The FY2025 budget approved a year introduced a sliding-scale tax system on gambling, placing particular pressure on the state’s largest licensed sports betting operators.

At the highest end of the scale, operators with revenue exceeding $200 million, namely DraftKings and FanDuel, must pay 40% of AGR in tax.

DraftKings considered winnings fee last year

Notably, this time around it’s DraftKings following FanDuel’s lead rather than the other way round, as was seen in the wake of the tax changes last year when DraftKings announced plans to introduce a gaming surcharge for players in high tax states.

In its Q2 2024 earnings presentation, the group said the surcharge would be “treated as a separate transaction” when paying winnings. It added this would improve adjusted EBITDA.

However, talk of such a fee caused an outcry from punters. The UK’s Regulus Partners also hit out at the idea, warning DraftKings would “lose market share, damage a brand and undermine credibility in one easy step”.

Then, on Flutter’s Q2 2024 post-earnings call CEO Peter Jackson revealed FanDuel had “no plans” to introduce the same surcharge.

Ultimately, this led to DraftKings swiftly dropping the plans. Just one hour after Flutter’s earnings call came to a conclusion, DraftKings announced that such a fee would not be implemented.