Topline
Bets on sports betting giants came up short Tuesday, as shares of gambling market dominators DraftKings and FanDuel tanked as Illinois closed in on a significant increase on the tax rate facing the companies’ operations in the state.
Tuesday was an icy day for DraftKings investors.
Key Facts
DraftKings stock nosedived 11% and U.S.-listed shares of FanDuel parent Flutter Entertainment tanked 7% in Tuesday trading, moving against the tech-heavy Nasdaq stock index’s modest gain.
The stock market losses came on the first day of trading after Illinois’ state senate advanced a bill that would up the effective tax rate major sports betting companies face in the state from a flat 15% to a graduated tax structure of up to 40% of gross gambling revenues, largely affecting DraftKings and FanDuel, the largest mobile sportsbook operators in the state and nationwide.
That would up DraftKings’ and FanDuel’s estimated effective tax rates in Illinois to about 35%, according to JPMorgan analyst Joseph Greff, an increase which would dramatically cut into the companies’ earnings power in the third-largest market for sports betting in the U.S.
It’s DraftKings’ steepest daily loss since Nov. 2022, sending it toward its lowest closing share price since January, and Flutter’s worst day since March, propelling it to a four-week low (FanDuel and other U.S. operations accounted for about 40% of the Dublin-based Flutter’s total revenues last year, hence the smaller impact).
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Big Number
$101 million to $134 million. That’s how much the Illinois tax increase would take away from DraftKings’ projected 2025 profits, according to JPMorgan’s estimates, a crucial blow for a company that’s hoping to deliver its first ever full-year profit next year, nursing four consecutive years of net losses over $800 million.
Key Background
DraftKings and Fanduel essentially enjoy a duopoly in Illinois’ online sports gambling industry, taking about 90% of all online sports wagers in the first four months of the year, according to the Illinois Gaming Board, though Fanatics SportsBook and Penn Entertainment’s ESPNBet are emerging competitors. The proposed increased sports betting tax still needs to pass the Illinois state house and the governor’s desk. Though Americans spent a record $120 billion on legal sports bets last year, DraftKings’ and Flutter’s stocks have yet to recover from their peaks a few years ago amid a wave of states’ legalizations, with Draftkings shares and Flutter shares down 50% and 20% from their respective 2021 all-time highs.