DraftKings, Flutter Shares Tumble on Illinois Sports Betting Tax Hike

A budget agreement that will nearly triple the tax on some sports bets in Illinois roiled shares of the major sports books operating in the state, sending shares of DraftKings down as much as 14% during trading Tuesday, while competitor Flutter, owner of FanDuel, plunged 8%.

Officials in Illinois agreed on a fiscal 2025 budget, for the year starting July 1, which includes a graduated tax plan that increases depending on how much adjusted gross revenue a sports book operator generates in the state.

Even at the lowest level, a 20% levy for companies with less than $30 million in volume, the tax on mobile betting moves higher from the 15% flat rate that has been applied in the state since 2021. The highest rate, 40% on revenue over $200 million, means on some wagers Illinois’ sports betting tax rate will be second in the nation, trailing New York’s 51% tax rate. Illinois has taxed retail betting and mobile betting at different rates, and while the new structure now creates the same tax structure for both, the rates will apply separately to retail sports betting and online wagering arms of individual companies. Adjusted gross revenue in Illinois is gross sports wagering money collected less winnings paid out, according to the American Gaming Association.

DraftKings (DKNG) and Flutter (FLUT) dominate betting in the state, meaning the progressive tax will affect them the most, with each expected to pay 40% rates based on their market share. DraftKings finished trading at $36.61, down 10%, while Flutter closed at $188.33, a loss of 8%. ESPNBet operator Penn Entertainment saw its shares lose 6% Tuesday. Representatives from the three companies didn’t immediately respond to requests for comment.

“For DKNG and FanDuel we believe the new progressive tax proposal is roughly in-line with the governor’s previously proposed 35% flat rate in February, and the new proposal is more beneficial for smaller operators like [Rush Street Interactive] and [Penn Entertainment],” said Needham & Co. equity analyst Bernie McTernan in a research note sent to clients Tuesday. “Thinking through the long-term implications, we expect fears of higher tax rates broadly to be more of a concern for investors.”

Other operators in the state also saw their shares move less dramatically: Rush Street shares ticked up 1% Tuesday since its casino locations will actually see taxes lowered under the new structure, while shares of MGM, which operates mobile-focused MGMBet domestically in a global partnership with Entain, lost 2%.

While a higher tax rate in Illinois may have been expected, the betting industry had been hoping the need for higher tax revenues would open up more approvals of iGaming—mobile casino game betting that is more profitable for operators than sports.

Taxes, along with the cost to attract customers, are two of the largest factors Wall Street focuses on with sports betting businesses.

“Assuming the higher proposed tax rate takes effect July 1, [DraftKings] would have to pay an incremental $44 million in taxes in [the rest of calendar 2024],” added McTernan. “The debate will likely shift to how much of these higher taxes DKNG will be able to offset.”

On an earnings call in early May, DraftKings CEO Jason Robins indicated higher taxes can be dealt with in a few ways, such as lowering marketing spending and reducing customer financial promotions.

“In the end, the cost has to get absorbed by the consumer if the government raises taxes,” Robins said.