DraftKings (NASDAQ: DKNG) announced Thursday that it may repurchase up to $1 billion of its shares and plans to implement a surcharge on bettors in several states with high sports wagering taxes.
The Boston-based gaming company revealed that the surcharge would be applied in states with elevated sports wagering levies and multiple operators. Illinois, which recently adopted a graduated sports betting tax scheme that increased rates for the largest operators, is one of four states where DraftKings will implement the surcharge. The other three states are New York, Pennsylvania, and Vermont.
CEO Jason Robins stated, “We plan to implement a gaming tax surcharge in high tax states that have multiple mobile sports betting operators on January 1, 2025, which could drive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) upside on an annual basis.”
DraftKings has forecasted 2025 EBITDA to be between $900 million and $1 billion, a projection that excludes any potential benefits from the new bettor tax.
The gaming company clarified that the surcharge would only apply to winning wagers and would be treated as a separate transaction when payouts are made. DraftKings assured clients that the tax would be clearly visible on bet slips. According to Robins and CFO Alan Ellingson, “The surcharge will be fairly nominal to the customer. In Illinois, for example, it will amount to a low to mid-single digit percentage of the Net Winnings a customer would previously have received.”
The announcement quickly drew criticism on social media, particularly on “Sports Betting X (formerly Twitter),” where users accused DraftKings of attempting to offset its tax liability by placing the burden on clients. Some critics suggested the surcharge could drive current DraftKings bettors to seek other options. There were even comments that black market bookies in New York might benefit from this decision. DraftKings is the first major online sportsbook operator to announce such a surcharge.
While the surcharge attracted significant attention, the $1 billion buyback also garnered interest. Analysts had anticipated some form of shareholder rewards, but this marks the first share repurchase plan since DraftKings went public over four years ago. Though companies aren’t legally bound to repurchase the full amount announced, buying back $1 billion worth of stock could boost shareholder confidence, particularly among those critical of frequent stock sales by DraftKings insiders.
In the earnings statement, CFO Ellingson expressed enthusiasm about the company’s free cash flow trajectory. By the end of the second quarter, DraftKings reported cash and cash equivalents of $815.88 million, with total liabilities standing at $2.91 billion, down from $3.10 billion at the end of the previous year.
