According to J.P. Morgan analyst Joseph Greff, shares of DraftKings declined 11 percent in early trading Tuesday. He attributed the falloff to news of a major tax increase passed by the Illinois State Senate. DraftKings was trading at $40.81 per share at the time of Greff’s investor note.

The analyst observed that the Illinois bill, which now goes to the state House of Representatives, excludes voided wagers from taxation, along with “other state accounting nuances.” He cautioned that it’s “not quite a done deal yet,” having to pass the House before going to the desk of Gov. J.B. Pritzker.

This stood in contrast with an earlier report by Deutsche Bank analyst Carlo Santarelli, which treated the new levies as a certainty.

Greff opined, “Investors were already baking in a degree of risk related to increased tax rates (in Illinois and/or New Jersey and other states, such as Massachusetts, though the latter seems dead based on recent public commentary).” However, he noted, such investors were likely to model an even higher likelihood of increased taxes in New Jersey now.

While acknowledging such concerns, Greff encouraged investors to buy DraftKings. “We believe there is (still) meaningful upside to Consensus estimates resulting from DKNG’s continued execution in an appealing sector, with attractive growth prospects and an its ability to leverage its scale to realize promotional efficiency and operating expense rationalization.”

The analyst calculated that DraftKings would shed two percent of its profit, as the higher impost stood to shave $35 million to $44 million off gross profitability. That effect would increase to as much as five percent next year, with a $101 million-to-$134 million reduction of after-tax profits.

“While we believe DKNG would begin (it likely has already started) actively managing its promotional-reinvestment rate and customer-acquisition strategy to offset reduced unit economics as a result of the higher tax rate,” Greff thought the new levy would “modestly” dampen the effect of beat-and-raise earnings guidance DraftKings might provide for the remainder of this year and possibly into 2025.

At press time, DraftKings shares had fallen still further, trading at $36.13 per share.

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