DraftKings to Begin Charging Extra Tax on Winnings in Four Markets

You could soon be bringing in less money from sports betting wins.

DraftKings Sportsbook has announced that it will begin charging an additional tax on all winnings in four markets. The new tax is intended to help offset the quickly increasing tax rates set by US states.

Starting on January 1, DraftKings bettors in New York, Pennsylvania, Illinois, and Vermont will all see the new tax kick in. While the tax rate isn’t official yet, all winnings are expected to be taxed somewhere between 3%-5%. 

The decision to implement this new tax could set a precedent that other sportsbooks will soon follow. However, the move could also allow smaller platforms to cut into their market share. The idea of sportsbooks taxing winnings will not sit well with bettors, who could look to other options.

The question now is which of DraftKings' competitors will follow their lead. Top competitor FanDuel will likely follow suit, but smaller operators may use higher winnings to lure bettors away from the two industry giants.

DraftKings Cites Increasing Tax Rates for Decision

While there are some questions about how this new tax will work, DraftKings's reason for implementing it is clear. The company has openly cited increasing tax rates across the country as the reason for the move.

“In 2021, New York legalized mobile sports betting and its tax rate of 51% made it only the second state in the nation, after Pennsylvania, that has multiple sports betting operators and a tax rate above 20%.” DraftKings shred in a letter to shareholders. “For the next three years, no other states followed suit so there was no major forcing mechanism for DraftKings or any other company to address the potential for higher tax rates becoming more widespread. However, over the past several months, we have seen a shift to tax rates over 20% in certain competitive markets, including a recent significant tax increase in Illinois. We now must consider the prospect that some states may choose to tax the industry at a rate that is in excess of what we can absorb while still generating a reasonable profit margin and remaining competitive against the pervasive illegal market that pays no taxes at all.”

Operators like DraftKings have promised increased tax rates in markets that could be passed on to the betting public. If this new tax goes through, it would mark the first move in response to these increasing rates.