Flutter, the parent company of mobile sports betting behemoth FanDuel, has countered the recently imposed handle tax in Illinois and will pass it on to its customers.
A Bridge Too Far
Mobile sports betting companies are often an unsympathetic target, frequently the recipient of increased taxes by states that believe they are generating too much revenue and not returning their fair share as a result of their immense popularity.
However, up until now, sportsbooks have only responded with a tersely worded letter, warning legislators that tax hikes would ultimately affect users through reduced odds, fewer bonuses, and infrequent promotions.
Nobody seemed to care or listen until DraftKings floated the idea of a surcharge on winning bets in states with high tax rates like Illinois, New York, Pennsylvania, and Vermont. However, when FanDuel did not subscribe to this retaliatory measure, the idea quickly died, and the lawmakers had won another round.
Illinois’ recent tax hike has obviously stirred a response, not from DraftKings, but from Flutter Entertainment, FanDuel’s parent company, which has announced a 50-cent surcharge on every bet in Illinois after the lawmakers not only increased the taxes on sportsbooks’ revenues last year from 15% to a tiered structure that affects the major sportsbooks the most, but also imposed a per-bet charge ranging from 25 cents to 50 cents depending on the sportsbooks’ volume.
Illinois Wants It All
The tax on adjusted gross revenues was passed last year in Illinois and is as follows:
- 20% of annual AGR up to and including $30 million;
- 25% of annual AGR over $30 million but not to exceed $50 million.
- 30% of annual AGR over $50 million but not to exceed $100 million.
- 35% of annual AGR over $100 million but not to exceed $200 million.
- 40% of annual AGR over $200 million.
This session, the Illinois lawmakers have included a tax on the handle, becoming only the second state to do it following Tennessee. However, unlike Tennessee, it will also maintain the revenue tax, where Tennessee taxes only the handle at 1.85%.
This new tax on each wager is as follows:
- $0.25 per wager for the first 20 million wagers placed in a fiscal year.
- $0.50 per wager for each additional wager beyond that.
FanDuel and DraftKings are paying the top-tier taxes at 40% and will now be subject to the higher 50-cent per bet charge due to their sheer volume.
The Backlash
FanDuel has decided to fight back against the tax and will now be imposing a 50-cent per bet surcharge of its own on its customers to defray the cost of the new tax.
Flutter Chief Executive Peter Jackson said the drastic measure must be taken against what he perceives are draconian taxes on his sportsbook. “It is important to recognize that there is an optimal level for gaming tax rates that enables operators to provide the best experience for customers, maximize market growth, and maximize revenue for states over time,” Jackson said in a statement.
Industry analysts estimate the new tax will cut Flutter’s profit by approximately $74 million in a full year without taking any measures to diminish it. DraftKings is expected to be hit almost as hard. Whether the Boston-based bookmaker follows suit is unknown at the time of this writing.
