FanDuel, a popular betting platform owned by Flutter, has reported impressive second-quarter earnings. This news has delighted investors and led to an 8% increase in share prices. One of the highlights of the report was FanDuel’s decision not to add a surcharge to offset an Illinois tax hike, which has garnered attention in the industry. In contrast, rival DraftKings initially announced plans to introduce a surcharge for customers in states with high sports betting taxes but later reversed course after facing backlash.
The proposed tax would have affected customer winnings in states like Illinois, New York, Pennsylvania, and Vermont, where the tax rates on sports betting companies are over 20%. Illinois, in particular, approved a 40% tax rate on gambling companies with significant adjusted gross revenue. Meanwhile, New York and New Hampshire maintain 51% tax rates on sports betting companies. DraftKings was the first operator to announce the surcharge, but Flutter’s FanDuel quickly followed suit in deciding not to impose it.
FanDuel plans to offset the impact of high state taxes through localized marketing and promotions instead. The company expects a net impact of $40 million in the second half of 2024 due to these taxes. Peter Jackson, the CEO of Flutter, even sees the tax hike as a potential competitive advantage, as smaller players may have to increase their prices, allowing FanDuel to capture more market share.
The decision by DraftKings to withdraw its plans for a surcharge was praised by gaming analysts. Users were disappointed with the initial decision, so the reversal removes uncertainty and potential reputational risks for the company. However, questions remain about how DraftKings will offset the impact of the tax hike and whether its guidance needs adjustment.
While FanDuel currently holds a 47% market share in the U.S. sports betting industry, its lead in iGaming, or online casino games, is even more significant. It holds a 25% share based on gross gaming revenue. The competition in iGaming is fierce, as the potential profits and future growth outweigh those of sports betting. In the first five months of 2024, operators reported $677 million in iGaming revenue from only seven states where it is legal, compared to $1 billion in sports betting revenue across 38 states and Washington, D.C. A recent report estimates that annual gross gaming revenue could reach $48 billion if every state that currently allows land-based casinos or sports betting also permits iGaming.
Despite concerns about a potential recession, the gambling industry remains resilient, with consumers continuing to spend on online gambling. A CNBC/Generation Lab poll found that 9% of people aged 18 to 34 spend at least $100 a month on online gambling, while 3% spend over $300 a month on online gaming.
The positive news from FanDuel and the gambling industry as a whole has had a positive impact on the market. The sports betting exchange-traded fund, BETZ, has seen a 3.5% increase in value, marking its third consecutive daily gain and its best day since January. While DraftKings stock has experienced a 9% decline this year, Flutter shares have risen by nearly 15%.
Overall, the competition between FanDuel and DraftKings in the online gambling market remains intense. Both companies are making strategic decisions to navigate the challenges posed by high state taxes and maximize their market share. As the industry continues to grow, it will be interesting to see how these companies adapt and innovate to stay ahead in the rapidly evolving world of online gambling.
