FanDuel parent Flutter impresses Wall Street, leading DraftKings to abandon plans for a customer tax.

• This week, investors were amazed by Flutter's impressive second-quarter earnings, resulting in a surge in share prices.
• The statement that FanDuel will not impose a markup to compensate for an increase in Illinois taxes drew notice.
• DraftKings abandoned plans to impose a fee on customers in states with high taxes on sports betting.

This week, the company reported phenomenal second-quarter earnings, which impressed investors and caused shares to rise by approximately 8% on Wednesday. The FanDuel betting platform has been capturing market share and experiencing significant revenue growth, even in well-established states with sports betting and online gaming.

Earlier this month, FanDuel announced that it would not impose a surcharge on consumers in Illinois, in contrast to its rival DraftKings, which stated it would add a fee to offset the state's tax increase on sports betting.

DraftKings' stock price dropped by 5% in extended trading after FanDuel released, but the company later changed its stance on taxing customers. Currently, DraftKings' stock is up more than 2%.

DraftKings has announced that they will not proceed with the gaming tax surcharge after listening to customer feedback. The company is dedicated to providing the best value in the industry to their loyal customers.

In states with multiple operators that have a tax rate over 20%, such as Illinois, New York, Pennsylvania, and Vermont, a nominal tax would have applied to customer winnings. Illinois has a 40% tax rate on gambling companies with the largest adjusted gross revenue, while New York and New Hampshire maintain 51% tax rates on sports betting companies.

Jason Robins, CEO of DraftKings, predicted that other sportsbooks would soon follow suit and implement similar fees on their users, as DraftKings was the first to announce such a charge.

Both sportsbooks in Illinois, neither nor , implemented the surcharge.

FanDuel announced on Tuesday that it would not impose a surcharge, but would instead offset the impact of high state taxes through more targeted marketing and promotions. The company expects a $40 million net impact in the second half of 2024.

Flutter CEO Peter Jackson stated that the Illinois tax increase could provide a competitive edge.

He stated on the company's earnings call that smaller players may need to raise their prices, which would result in us gaining more market share, thereby offsetting any potential losses.

Gaming analysts praised DraftKings' decision to yank its plans for a surcharge.

Piper Sandler analyst Matt Farrell wrote that removing the surcharge was a positive for the story as users were dissatisfied with the company's initial decision.

Barry Jonas, a Truist analyst, stated that the reversal would reduce some ambiguity regarding execution risks, such as market share and reputational impact. However, it also raises the question of how DKNG can mitigate the consequences and whether guidance should be adjusted.

FanDuel holds a 47% market share in U.S. sports betting and a 25% share in iGaming, making it a leader in both industries based on gross gaming revenue.

Sports betting has become less competitive compared to iGaming, as the potential profits and future growth opportunities in iGaming are significantly greater.

In the first five months of 2024, iGaming revenue from seven legal states was $677 million, while sports betting revenue in 38 states and Washington, D.C. reached $1 billion during the same period.

If all states that currently allow land-based casinos or sports betting permitted iGaming, a new report from games maker Light & Wonder and Vixio estimates annual gross gaming revenue of $48 billion.

Despite recession concerns, the gambling industry appears to be unfazed, while other consumer-dependent businesses are experiencing a decrease in spending.

A CNBC/Generation Lab survey found that 9% of 18-34 year olds spend at least $100 monthly on online gambling, while 3% spend over $300.

The ETF that tracks the performance of sports betting exchange-traded funds, , experienced a 3.5% increase in value on Wednesday, marking its third consecutive daily gain and best day since January.

While Flutter shares have increased by nearly 15% year to date, DraftKings stock has decreased approximately 9%.