The sports betting industry has been booming in the US ever since the Supreme Court repealed PASPA, the controversial law that prohibited states from regulating their own sports betting markets in 2018.
Now, six years later, bettors in four major states may be faced with a special surcharge on all their winning bets starting in 2025, which is set to be imposed by DraftKings, one of the biggest betting platforms in the country.
According to the recent announcement, DraftKings is looking into introducing a 3 — 4% surcharge on all winning bets in states where tax rates exceed 30%, which currently means New York, Pennsylvania, Illinois, and Vermont bettors are likely to be affected.
The surcharge will force bettors in the affected states to pay an extra charge on any profit they make from a winning bet, and will in turn mitigate the losses incurred by the operator due to recent increases in tax rates in states like Illinois.
At this time, no other operators have announced a similar surcharge, but experts believe that DraftKings is taking the fight to the legislatures that may be looking to raise their taxes in the future.
Why Is DraftKings Introducing the Surcharge?
Introducing the proposed surcharge, which is supposed to go into power starting January 1, 2025, may alleviate the DraftKings tax situation, but will also cause a lot of pushback from the bettors.
Having to pay an extra 3 — 4% on their wins, when players in other states are not doing so, may seem like an excessive fee, especially if other operators don’t introduce a similar measure.
However, DraftKings are betting that this measure will prompt legislatures in other states that may be considering raising the taxes, as well as those in states still left to introduce their sports betting bills, to be more careful in considering the rate at which they will tax their operators.
The move comes in the wake of Illinois increasing the tax from 15% to 40% of all profits, while New York is taxing operators 51% of their profits simply to operate in their jurisdiction.
According to the New York Post, sports betting is a highly lucrative business for big companies like DraftKings and FanDuel, but smaller operators like BetRivers, Fanatics, or ESPN Bet may have a hard time breaking out in markets riddled with high tax rates.
Which States Will Be Exempt?
Fortunately, the situation surrounding potential surcharges is only concerning for players in a handful of states that impose a tax rate higher than 30% on their operators, while everyone else should not be concerned.
States like Michigan, New Jersey, Nevada, and dozens of others that allow the operator of sportsbooks, all tax operators less than 30%, should not be affected by the DraftKings surcharge in 2025.
However, other state legislatures may look into raising the tax rate on their sports betting operators in the years to come, which could cause both DraftKings and other operators to take similar steps to mitigate their losses and put pressure on the people making the decisions.
In the meantime, most Americans will go into 2025 making their bets at DraftKings and enjoying the full scope of bonuses and DraftKings Dynasty Rewards available on the platform, along with no extra surcharges on their winning bets.
For those living in New York, Pennsylvania, Illinois, and Vermont, the situation remains uncertain at this time, and only time will tell if DraftKings goes through with the surcharge or finds another solution moving forward.
