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Online sports betting company DraftKings is planning to launch a new surcharge on consumers in states that heavily tax its industry as the company seeks to boost its profits following a strong second-quarter.
Boston-based DraftKings said Thursday that it will begin taxing winning bets in states that have a tax rate of more than 20% and multiple betting operators. That would include New York, Pennsylvania, Illinois, and Vermont.
The surcharge, which will go into effect on January 1, 2025, will be treated as a separate transaction when DraftKings pays out winnings. For example, DraftKings said a $10 bet to win $20 would result in a surcharge of 32 cents.
“There is a solution here,” DraftKings CEO Jason Robins said in a letter to shareholders. “As you know, many revenue-based taxes are passed along to the consumer. The online gaming industry has not pursued this approach in lower tax jurisdictions, but it has in higher tax jurisdictions such as Germany.”
The moves comes after DraftKing’s April to June quarter became its first-ever profitable quarter since it went public in April 2020. The firm reported $1.1. billion in revenue, up 26% year-over-year, and net income of $36.8 million, up from a loss of $77.3 million a year earlier.
Full-year revenue guidance was raised to between $5.05 billion and $5.25 billion from its previous guidance of between $4.80 billion to $5 billion. Robins cited strong expectations for Jackpot — a recently acquired lottery app — and expansions into new jurisdictions, such as Washington, D.C. The company’s mobile sports betting service is now live in 25 states and the District of Columbia, while its iGaming division is available in five states.
However, DraftKings lowered its adjusted earnings guidance for the full year to between $340 million and $420 million, down from $460 million to $540 million. Robins said the surcharge could provide a boost to annual adjusted earnings when it launches next year. But “even if we don’t get any benefit from the fee, we will see still $900 million to $1 billion in adjusted EBITDA next year,” he said during a Friday earnings call.
DraftKings also announced its first ever $1 billion share repurchase program.
DraftKings stock tanked more than 10% in trading Friday morning, as consumers reacted to the new fees and investors balked at the new guidance. Shares are down more than 4% year-to-date.