North Carolina sports bettors now have one more reason to thank their lawmakers: they won’t have to pay DraftKings’ proposed surcharge on their winning bets.
DraftKings is one of the top operators in the North Carolina online sports betting market, having launched on March 11, 2024, the day sports betting went live in the state.
The proposed surcharge, should DraftKings choose to launch it, is the first of its kind in the US
DraftKings is first to combat high taxes with surcharge on winnings
In its quarter two earnings call last week, DraftKings CEO Jason Robbins announced that the company would counter high sports betting tax rates by imposing a surcharge on winning bets starting Jan. 1, 2025.
DraftKings has been paying high tax rates in New York and Pennsylvania for more than two years, but it appears that Illinois’ change in the tax rate–from a flat 15% tax to a graduated tax rate ranging from 20% to 40%–was the tipping point.
What does DraftKings consider a “high” tax rate?
Robbins indicated the surcharge would counteract sports betting tax rates greater than 20%. The only states with such rates are New York (51%), New Hampshire (51%), Rhode Island (51%), Illinois (20%-40%, depending on revenue), Pennsylvania (36%), and Vermont (~31%).
So far, only New York, Pennsylvania, Illinois, and Vermont have been identified as incurring the surcharge. However, it seems likely that it will also show up in New Hampshire and Rhode Island. Bettors would see a line on their winning bet slips labeled “Gaming tax surcharge.” The surcharge wouldn’t be paid on lost wagers.
For example, Robbins presented a sample Illinois bettors’ slip for a $20 winning bet. On the slip, the bettor would pay 3.2% of the winnings ($.32) back to DraftKings. In terms of the betting line, this would shift the odds from +100 to -104.
While a seemingly nominal charge to the casual bettor, that surcharge gets pretty ugly as the winnings increase.
North Carolinians avoid the surcharge by two percent
Two percentage points is the margin by which DraftKings North Carolina bettors avoided the surcharge.
When lawmakers first proposed a legal sports betting bill in North Carolina, they included a 14% tax rate on operators. That number grew to 18% when the bill passed through Senate committee, and that is where it stands.
The 18% rate is slightly higher than the national average though nowhere near what operators pay to do business in New York, Pennsylvania, and Illinois. When it was proposed, NCSharp assessed it as slightly above the national average though competitive with comparable states and good for the North Carolina economy.
We can now add safe from betting surcharges imposed in high-tax states to the list.
Will other operators impose betting surcharges?
The industry will be watching FanDuel next Tuesday when its parent company, Flutter Entertainment, announces its second-quarter earnings. If Flutter doesn’t address the surcharge model in its presentation, the topic will likely come up in the Q&A.
At this point, other operators could implicitly take the cue from DraftKings and offer similar surcharges. And there’s nothing stopping them from imposing them on North Carolina sports bettors, either. Just because DraftKings set the threshold at tax rates of >20%, other operators running their own math might find it necessary to tax states with even lower tax rates or even all states where they operate.
On the flip side, operators could see the frustration DraftKings’ decision caused its customers and leverage it to draw them away. BetRivers has already said as much.
Whether betting surcharges start showing up on winning bet slips in North Carolina or operators begin offering worse odds to counterbalance high tax rates, we may be entering a new phase in the US legal sports betting market. A phase where operators take a more aggressive approach to offloading their tax burdens to bettors.
For now, the best thing NC sports bettors can do is download multiple apps and shop odds diligently.
Image Credit: Charles Krupa / AP Images
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