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Impact of Proposed Illinois Gambling Tax Increase on DraftKings and Flutter Entertainment Stocks
May 30, 2024 Marija D
The gambling industry recently witnessed a significant event as DraftKings and Flutter Entertainment, the parent company of FanDuel Group, experienced a notable downturn in their stock prices. This market reaction was a direct response to discussions in Illinois regarding a potential gambling tax increase.
Understanding the Proposed Tax Structure
The proposed tax structure in Illinois suggests a graduated system, which would replace the current 15% flat rate. Under this new framework, operators would face tax rates ranging from 20% to 40% based on their adjusted gaming revenue (AGR). For instance, operators generating over $200 million in AGR would fall into the highest tax bracket of 40%.
DraftKings and FanDuel, being major players in the industry, would be significantly affected by this tax hike. The increase would lead to substantial additional tax burdens for these operators, potentially impacting their financial performance and market standing.
Following the news of the proposed tax hike, both DraftKings and Flutter Entertainment experienced declines in their stock prices. This market reaction reflects investor concerns about the potential financial implications of the tax increase on these companies’ bottom lines.
Flutter Entertainment’s stock price dropped by 3.7% shortly after trading began, while DraftKings saw a more significant decrease of 12.0%. Although DraftKings did experience some level of recovery later in the trading day, the overall impact on both companies’ stock prices was evident.
Industry analysts, such as those from Truist, have weighed in on the situation. They highlight the potential additional tax burdens that major operators like DraftKings and FanDuel would face if the proposed tax rates were implemented based on current financial figures.
The impact of the tax hike on other operators in the state would vary, with Rush Street Interactive facing a 30% rate, resulting in an additional $12 million due based on their $82 million AGR from FY23. BetMGM, Penn Entertainment, and Caesars would fall into the 20% tax bracket with their respective AGR figures of $43 million, $38 million, and $33 million.
Potential Player Behavior Shifts
Beyond the financial impact on operators, there are concerns about potential shifts in player behavior. The Sports Betting Alliance, representing major operators including DraftKings and FanDuel, has expressed concerns about players migrating to unlicensed platforms due to reduced offerings from licensed operators.
This development in Illinois is part of a broader trend where lawmakers in multiple states are considering tax increases in the gambling sector. However, it’s worth noting that not all proposed tax hikes have been implemented, as seen in Massachusetts where a similar proposal was recently rejected.
The proposed gambling tax hike in Illinois has sparked discussions and raised important questions about its potential impact on operators, investors, and players alike. Finding a balance between generating revenue for the state and maintaining a competitive and regulated gambling market will be crucial moving forward. It remains to be seen how operators will navigate these challenges and how regulatory decisions will shape the future of the industry.
Truist analysts said: “One aspect of the Alliance response we’d echo is that we think states are underestimating the prevalence of the illegal markets, which on-shore operators compete with fiercely. We conducted a recent survey of online sports betting players, which showed that 31% of respondents bet offshore, although 71% of VIPs do. That stat is in-line with prior data we’ve featured from Juice Reel that shows off-shore books see 18% of the platform’s total tracked bets, although 46%/50% of online sports betting handle/revenues.”
Source:
”DraftKings and Flutter stock falls on proposed Illinois tax hike”, iGamingBusiness. May 29, 2024.
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O-o, not so good news for the local operators. I understand the lawmakers but I am worried about the players. Hope that no one will check up on unlicensed casinos.