Sixty percent of investors surveyed by Jefferies Equity Research disapprove of DraftKings’s newly announced (but not yet implemented) surcharge on winning bets. Forty percent of those polled by analyst David Katz approve of the move, with one respondent expressing neutrality.

Katz’s own view “leans more positively,” he said, looking at the surcharge from a free-cash-flow standpoint and an EBITDA one, as opposed to looking at market share. DraftKings announced the surcharge on August 2, a retaliatory move against tax rates in Illinois, New York, Vermont, and Pennsylvania.

According to DraftKings, the impost will be levied only in those four markets. Rush Street Gaming announced yesterday that it’s not opting to levy a similar surcharge through BetRivers.

DraftKings has left its options open as to whether to impose the surcharge on bettors in low-tax states, according to Katz. Management has also indicated that its expects the levy to drive cash flow from 2025 going forward.

Bearish investors fear that, by taking a share of players’ winnings in this fashion, DraftKings cedes an advantage to main rival FanDuel. “FanDuel could market against it and gain more share from new customers, irrespective of whether it leads to more EBITDA, which would be negative for DKNG shares,” Katz explained.

The analyst went on to point out that BetRivers makes much less in Illinois and is therefore subject to a lower tax rate. He implied that this gives Rush Street less incentive to dun players additionally.

Investors also worry that DraftKings’s reaction was premature and retaliatory. They fear it could alienate state legislators in jurisdictions, such as Illinois, that have been pondering igaming, “implying it is essentially too early to define a fair margin,” Katz wrote.

“Others indicated that the risk is high, unless DKNG’s intelligence suggests more states are likely to raise taxes,” the analyst continued. He added, “The best case is you offset the tax increase in part, the worst case is you lose more share than you expect and have to reverse the strategy.”

As for the bullish case, it was premised on the belief that customer surcharges would be good for the industry and would generate further cash flow, possibly at the expense of market share. Most respondents, Katz added, were taking a wait-and-see attitude, contingent upon whether or not FanDuel follows DraftKings’ lead.

“Some believe FanDuel would not take an absolute stance in response, but rather could leave room for flexibility in the future,” Katz reported. He added that those polled were of the view that online sports betting providers should be more cognizant of what individual states do in response than of what the competition does.

The bulls were also of the opinion that levying an extra charge on players “sends an important signal to regulators about over-taxing leading to lower revenues for the state and the operators.”

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