DraftKings Surcharges Could Increase Revenue Sports Betting

Research Shows DraftKings Surcharges Could Increase Revenue by Millions

By Blake Roberts Founder & Editor in Chief Updated: 24 August 2024

Blake Roberts Founder & Editor in Chief

Blake Roberts is the founder of Betting.US and is currently heading the creative team as Editor in Chief. Born and raised in Morgantown, West Virginia, Blake is a great sports fan, with football and basketball being his favorite. He’s our trusted voice for all betting-related matters.

See Full Bio

The sports betting industry giant, DraftKings, recently revealed that it plans to introduce a surcharge on bettors’ winnings in some states. The surcharge is set to begin at the start of 2025, and it will be implemented in states where the tax rate on sports betting is over 20 percent. This includes Illinois, Pennsylvania, and New York.

Since the announcement, research has been carried out into the impact of the surcharge. Industry experts claim that the introduction of the surcharge on bettors’ winnings could lead to a huge increase in revenue. An estimate from Eilers & Krejcik Gaming suggests that gross gaming revenue could increase by $270 million as a result of the surcharges.

Lowering the Impact of High Tax Rates

The decision to introduce a surcharge is a controversial one, but some believe that other sports betting operators could follow suit. DraftKings has decided to bring in the surcharge in a bid to lower the impact of high tax rates on betting in certain states.

Based on the research carried out by EKG, DraftKings is set to do very well out of the surcharge if everything runs smoothly. The surcharges are set to vary from state to state, according to officials.

In its analysis, EKG stated,

Surcharges would be lowest in Pennsylvania (1.0% surcharge, $9 million surcharge revenue) and highest in New York (6.6% / $209 million). The New York surcharge reflects the gap between the state’s 51% GGR tax and DraftKings’ target 20% rate.

The company also said that if its forecast is accurate, the operator’s GGR could increase by 150 basis points, rising by 34 percent.

The Impact of Bettors Moving to Other Platforms

One thing that has not been taken into consideration as part of the EKG analysis is the impact of bettors moving away from DraftKings and turning to other operators once the surcharge comes into effect at the start of January.

Some operators will avoid introducing a surcharge in states where tax rates on sports betting are high. This includes Rush Street Interactive, which recently announced its decision not to bring in a surcharge, and to focus instead on customer satisfaction and retention.

As a result of the surcharge that is being introduced by DraftKings, many sports fans might decide to move away from the operator to avoid these charges. This could then have a huge impact on the figures released by EKG in terms of the effect on gross gaming revenue.

If other sports betting platforms also decide to bring in a surcharge, many smaller operators that don’t bring in these charges stand to benefit. They could see their market share increase rapidly as a result of bettors turning to platforms where charges are not imposed on winnings.

In the meantime, the parent company of ESPN Bet, Penn Entertainment, has stated that it has not yet made any decision on whether or not to bring in a surcharge in certain states. Caesars Entertainment and BetMGM have not yet revealed any plans to bring in these charges.