Quiver Quantitative - DraftKings (NASDAQ:DKNG) (DKNG) and FanDuel-owner Flutter Entertainment (LON:FLTRF) fell on Tuesday after the Illinois Senate passed legislation that would raise taxes on sports betting. The proposed bills aim to change the current 15% sports gambling tax to a new graduated format, potentially reaching as high as 40% on the adjusted gross revenue of sports gaming companies. This legislation, part of the Illinois budget package, is now heading to the state’s House, which is set to reconvene on Tuesday.
DraftKings shares dropped as much as 10% on Tuesday, marking the most significant decline since August. US shares of Flutter Entertainment (FLUT) also fell by as much as 5.6%. According to Needham analyst Bernie McTernan, the potential for a higher tax rate in Illinois has been a key focus for investors since it was first proposed months ago.
Market Overview:
- Investors react negatively to the potential for significantly higher tax burdens on sportsbook operators.
- Illinois Senate approves legislation that could raise sports betting tax from 15% to a tiered structure reaching 40%.
- The bill, part of the state budget, still needs approval from the House before becoming law.
- Analysts believe investors were anticipating this possibility for months, but the potential impact remains a concern.
- The market awaits the House vote and potential negotiations over the final tax structure.
- Sportsbook operators face a trade-off between absorbing higher taxes or reducing customer acquisition spending.
- The Illinois case could set a precedent for other states considering adjustments to their sports betting tax rates.
"Thinking through long-term implications, we expect fears of higher tax rates broadly to be more of a concern for investors," McTernan wrote in a note to clients. "We expect the debate to shift to how much of the higher taxes can be offset by lower investments in the customer." Meanwhile, Rush Street Interactive (RSI) stock remained unchanged, and shares of Penn Entertainment (PENN) were down as much as 1.6%. McTernan noted that these companies would pay a lower tax rate than DraftKings based on their current market share.
The proposed tax hike reflects broader concerns within the sports betting industry about the financial impact of regulatory changes. As states continue to adjust their tax structures, the industry faces increasing pressure to balance profitability with compliance. The outcome of the Illinois House's decision will be closely watched, as it could set a precedent for other states considering similar measures.
This article was originally published on Quiver Quantitative