DraftKings could follow FanDuel with its strategy to offset state tax increases

Analysts are reacting to the notable development in Illinois of Flutter Entertainment (NYSE:FLUT) adding a transaction fee to offset a new state tax increase due to go into effect on July 1.

Jefferies thinks Flutter’s (NYSE:FLUT) decision to pass on the $0.50 online sports betting tax in Illinois to customers will be followed by DraftKings (NASDAQ:DKNG). “Given the structure of the tax, a surcharge is the most direct cost offset, and we view the move as a modest positive for the shares of the operators,” highlighted analyst David Katz. Notably, the firm thinks market share loss to smaller operators is unlikely due to the commanding position of Flutter (FLUT) and DraftKings (NASDAQ:DKNG), as well as the possibility that smaller operators could follow with surcharges of their own.

BMO Capital Markets analyst Brian Pitz said the move by Flutter (FLUT) could represent a step-function change in how operators respond to regulation, as operators no longer appear willing to absorb higher costs and will seek to pass them along to the consumer. “New fees on every bet could drive users to leverage illegal operators who won’t add a fee (because they don’t pay state taxes), and are thus unaffected by the new IL per-bet tax,” warned Pitz. BTIG thinks the FanDuel announcement sets the stage for how operators will offset future tax increases and sends a direct signal to lawmakers that tax increases will ultimately be paid by consumers.