DraftKings to impose high tax rates on winning bets in select states in an effort to increase profits.

• DraftKings is considering imposing a tax on consumers in states with the highest sports betting tax rates in an effort to increase profits.
• In states with multiple betting operators and a tax rate above 20%, starting next year, a gaming surcharge will be implemented on winning bets.
• The company's first-ever profitable quarter as a public company was announced along with its second-quarter earnings.

The mobile betting company aims to increase revenue by imposing a tax on consumers in states with the highest sports betting taxes.

The company announced that starting next year, it will impose a gaming surcharge on winning bets in states with multiple betting operators and a tax rate above 20%, which includes Illinois, New York, Pennsylvania, and Vermont.

Jason Robins, CEO and cofounder of DraftKings, stated to CNBC that the best course of action is to follow the lead of other industries, such as hotels and taxis, and implement a tax on their products.

LSEG reported that DraftKings' revenue for the second quarter was $1.1 billion, which was in line with consensus estimates. This marked the company's first profitable quarter as a public company.

In May, fears of tax hikes in gaming pressured DraftKings stock and other betting companies, as Illinois approved a tax hike on sports betting revenue. The sliding tax rates impose 40% levies on companies with the largest adjusted gross revenue, while New York and New Hampshire each maintain 51% tax rates on sports betting companies.

In a letter to shareholders, Robins announced that the new surcharge will be minimal for customers. In Illinois, it will amount to a low- to mid-single-digit percentage of net winnings.

Robins gave an example of a $10 bet to win $20, which would result in a payout of 30 cents.

DraftKings is reportedly the first U.S. operator to introduce a tax. Robins stated that he carefully considered the matter and hopes it will prompt states to reconsider their tax rates.

If states realize that they cannot invest in their product and customer experience as needed above a certain level, it might change their perspective.

Robins stated that DraftKings customer response is "We're not going to hide it." He added that they could see some customers drop off and player betting activity if they don't like it.

Robins says DraftKings is not including the new tax in its guidance.

The company updated its revenue guidance to a range of $5.05 billion to $5.25 billion, representing 38% to 43% year-over-year growth.

The sports betting giant revised its 2024 adjusted EBITDA forecast to a range of $340 million to $420 million, from the previous projection of $460 million to $540 million.

For the first time, the company reported a profit during the second quarter, with net income of $63.8 million or 10 cents per share, compared to a net loss of $77.3 million or 17 cents per share in the previous year.

LSEG's analysts predicted a per-share loss of 1 cent for the period.

The company's revenue increased by 26% to $1.1 billion from $874.9 million the previous year, primarily due to continued customer engagement, expansion into new markets, and the acquisition of Jackpocket.

"Despite the Illinois tax increase next year, Robins stated on the company's earnings call that the overperformance in customer acquisition, the launch of Washington D.C., positive EBITDA expectations for Jackpocket, and underlying trends with existing customers and handle performance will offset the tax increase. As a result, the company expects to generate $900 million to $1 billion in adjusted EBITDA next year, regardless of any fee benefits."

In 25 states and Washington, D.C., DraftKings offers mobile sports betting, while its iGaming division is active in 5 states.

This year, 10 more jurisdictions have either passed legislation to legalize mobile sports betting or introduced a bill that could lead to a mobile sports betting referendum in an upcoming election.

DraftKings announced its first $1 billion share repurchase program, with a market cap of approximately $14 billion.