DraftKings and FanDuel To Levy Sports Betting Surcharges in Illinois

The handwriting was on the wall. As states that allow online gambling access, it was only a matter of time before legislators would turn to the online gambling industry for tax revenue. That is exactly what is happening in Illinois now and perhaps in other states in the near future.

Recently, the Illinois state legislature decided to levy a higher tax rate of up to 40% of gross gambling revenue on retail and online sports betting operators. They have followed up on that by approving a surcharge for the sports betting handle. The first $20,000,000 of handle under this new law will be subject to a $.25 surcharge per wager. The surcharge then increases to $.50 thereafter.

This has prompted DraftKings and Fanduel to respond by stating they would start charging customers a responding surcharge of $.50 per mobile or online sports bet, which is scheduled to go into effect on September 1, 2025. Management of both companies felt this move was necessary to compensate for an overall increase of almost 3 times the original tax rate employed when legal sports betting first launched.

It was immediately clear that this new surcharge levied by the Illinois government would likely impact DraftKings and FanDuel the most. According to DraftKings CEO Jason Robins in a press release:

“We’re disappointed Illinois policymakers have chosen to more than triple our tax rate over the past two years.” 

It's worth noting that DraftKings had previously thought to start charging a surcharge in four (4) states where the effective tax rates are 20% or above. Those plans were quickly squelched when no other operators were willing to follow suit.

The Potential Fallout of the Surcharge

Immediately, social media became flooded with comments from active Illinois sports bettors. The general sentiment was one of concern over being "punished" by companies that were unwilling to absorb the surcharge, instead electing to pass it down to customers.

This might open the door to smaller sports betting operators that aren't going to get hit as hard by the impact of the state's surcharge. They can choose not to charge customers a responding surcharge, giving them a competitive edge of sorts. That might account for announcements that BetMGM and Caesars Sportsbook are electing to not levy a surcharge on sports bets at this time. Truist Securities analyst Barry Jonas made clear he believed this is the perfect way for smaller operators to steal business for the "big 2." He told the press:

"MGM and CZR didn’t immediately appear to be looking to follow FLUT (and now DKNG) in implementing surcharges. We do wonder if this could be an opportunity for either/both to gain market share."

As each operator scrambles to decide how to handle this issue, one thing is clear. Sports betting operators that choose not to pass the surcharge on to customers might get a small hit to their bottom lines. It is a matter of comparing loss income versus the opportunity to claim more new customers.