Shares of DraftKings (NASDAQ: DKNG) dipped barely on Wednesday following a Tuesday tumble attributable to information that Illinois will implement a progressive sports activities wagering tax that may saddle the biggest operators by income with the most important tabs.
DraftKings inventory highlighted on the Nasdaq market web site. Contagion threat associated to the Illinois tax hike is overstated, based on an analyst. (Picture: Nasdaq)
Meaning DraftKings and FanDuel guardian Flutter Leisure (NYSE: FLUT) may see their Illinois tax charges surge to 36% and 37%, respectively, from the present levy of 15%. It was broadly anticipated that Illinois, which is staring down a finances deficit, would enhance sports activities wagering taxes, however buyers are spooked by the specter of different states following go well with. Some analysts view “contagion threat” as restricted.
Whereas we acknowledge accelerating regulatory headwinds, we consider the preliminary pullback overstates threat of ‘contagion’ whereas efforts to boost tax revenues learn favorably for potential renewed iCasino growth momentum,” wrote Stifel analyst Jeffrey Stantial in a observe to purchasers.
Stantial reiterated a “purchase” ranking on DraftKings with a $50 value goal, down from $51, implying upside of about 39% from Wednesday’s shut.
Illinois Tax Coverage Takes Purpose at DraftKings, FanDuel
Illinois isn’t deliberately concentrating on DraftKings and FanDuel, however the construction of the state’s new sports activities wagering tax places the biggest operators on the defensive.
These are DraftKings and FanDuel, which by some estimates, management 70% to 75% of the US on-line sports activities wagering market. The brand new coverage in Illinois, which is scheduled to enter impact on July 1, requires the sportsbook operators producing essentially the most income to pay larger percentages of adjusted gaming income (AGR) to the state whereas smaller rivals may see tax liabilities diminished.
“Underneath the brand new regime, operators would pay 20% on AGR as much as $30M; 25% on $30-50M; 30% on $50-100M; 35% on $100-200M; and 40% on >$200M,” added Stantial.
The analyst noticed the brand new tax panorama within the Midwest state “disproportionately impacts DraftKings/FanDuel,” and that operators are prone to cut back promotional spending there consistent with the tax enhance. Stantial additionally mentioned advertising spending in Illinois could possibly be diminished as an avenue for gaming firms coping with elevated tax payments.
Greater Odds Unlikely
In railing in opposition to the Illinois tax proposal, gaming business commerce teams claimed the consequences could be felt by bettors who would probably be topic to longer odds on video games as operators try and cope with the upper levies. Nonetheless, some teams assailed that business tactic, calling it doubtful whereas noting that when sports activities wagering tax will increase have been applied in mature markets, bettors haven’t been adversely affected.
Stantial mentioned there’s little proof to help the notion odds worsen as sports activities betting tax regimes change, citing Europe and a few US states as affirmation of that assertion.
“Backside line, we see materials, however manageable, direct influence from the proposed tax system change to DraftKings/FanDuel. We forecast solely modest influence for different operators within the state, with the progressive tax system limiting by-product offsets from market share consolidation traditionally noticed round tax price hikes,” concluded the analyst.
