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Read Full BioESPN Bet has raised its minimum bet in Illinois from 10 cents to $1 in response to the additional $0.25/$0.50 tax levied on all bets placed in the state.
Felicia Hendrix, CFO of Penn Entertainment, the owner of ESPN Bet, commented in the company’s earnings call last week that additional taxes in Illinois, as well as New Jersey, Louisiana and Maryland, contributed to the company adding $10 million in costs to its guidance for the year.
PENN’s interactive segment, spearheaded by ESPN Bet, saw revenue grow by 35.9% in Q2, and the company is targeting further growth when the football season kicks off. ESPN’s deal with the NFL is expected to boost performance, and PENN is hoping the interactive segment will move into profitability in the last quarter this year, despite rising taxes.
Sportsbooks Unclear on How to Deal With Per-Bet Tax
The unprecedented move to impose a tax on every bet placed has left sportsbooks scrambling to find the best response, and many appear unclear on how to deal with it effectively.
ESPN Bet’s move to increase the minimum stake is in line with BetRivers, BetMGM, and Hard Rock Bet, while DraftKings, Fanatics, and FanDuel have all added a betting surcharge to users in Illinois.
Kyle Sauers, Chief Financial Officer of Rush Street Interactive, the parent group of BetRivers, commented on the tax, stating: “What we have done to date is we’ve moved the minimum bet up to $1. That’s the move thus far, but we’re remaining flexible to figure out the right way to approach it as we get towards NFL season.”
Betting Surcharges Could be Subject to Additional Tax
Sportsbooks that have added a betting surcharge may be subject to additional taxes. The Illinois Gaming Board (IGB) stated in a press release that sportsbooks should report the per-wager fees on tax returns. The guidelines note the area on the form for additional “gross sports wagering receipts”, stating:
“These fields should be used for any additional revenue received in relation to the conduct of sports wagering. This includes, but is not limited to: Per-wager fees not already reflected in the handle fields.”
DraftKings May Reconsider Its Approach
In DraftKings’ earnings call, CEO Jason Robins commented that he did not think the surcharges should be taxed, stating: “Our position is this was a pass-through and it shouldn’t be taxed.”
However, he admitted that the IGB may think otherwise, adding: “I think Illinois has taken a little bit of a different view on it, so we’re going to try to obviously resolve that before we implement the charge.”
The $0.50 charge is set to take effect on September 1; however, if it is subject to taxation, the sportsbook will reconsider its approach. Robins added: “I think tweaking pricing is something you need to consider. If it ends up being treated as taxable revenue, then there’s really no benefit to do that versus incorporating into the pricing. So that is something that we’d have to consider.”
FanDuel Also Believes Surcharge Won’t be Taxed
Flutter CFO Rob Coldrake also said that the company does not believe the betting surcharge in Illinois is taxable, and its financial guidance for FanDuel is based on that assumption. Flutter raised its guidance for the year after beating expectations this quarter.
Coldrake said: “Obviously, we’re monitoring the situation quite closely. We landed on the transaction fee because it’s easy for our customers to understand, it ties directly to the legislation, and it’s easy to implement from a tax perspective.”
Like others, he said the company may change its policy, stating: “If there’s a different way it’s perceived by the state, we’ll adjust accordingly.”
The comments suggest that both DraftKings and FanDuel may follow ESPN Bet and others in adding minimum bet stakes, rather than a taxable betting surcharge.
