DraftKings Adds Tax on Winnings After First Profitable Quarter

DraftKings announced several big changes at the end of the week on the coattails of its first profitable quarter as a public company.

The sportsbook will become the first to tax U.S. bettors on their winnings in states that have a tax rate for betting operators above 20%. Illinois, New York, Pennsylvania, and Vermont are among the states impacted, with users getting charged a fee around 3% to 5% on winning bets starting next year.

“If you made a $10 bet to win $20, you would pay like 30 cents,” CEO Jason Robins told CNBC. “We decided that the best course of action is to do what really every other industry [does]—whether it’s hotels, taxis—whatever else you buy generally has some kind of tax.”

The decision comes not long after Illinois hiked up its rate to 40%, which followed New York, New Hampshire, and Rhode Island moving their rates to 51%. DraftKings is making it clear to other states with bills in the works that their legislatures’ decisions will impact consumers.

“I do think that if states start to realize that above a certain level, we can’t invest in our product and customer experience in the way that we need to … it might make them think differently about it,” Robins told CNBC.

Illinois, for its part, felt like it was just catching up to other major betting states with its increase, according to the Chicago Sun-Times, which reported that FanDuel and DraftKings combined for more than $729 million in state revenue last year while paying a combined $110 million in taxes.

More Change: Stock Buyback

After reporting $1.1 billion in revenue for the second quarter that fell behind estimates, DraftKings’s stock dropped 5% Friday morning.

The company also announced a stock buyback plan, repurchasing up to $1 billion of its Class A common stock. CFO Alan Ellingson said the plan “reflects our confidence in the company’s attractive long-term outlook and healthy balance sheet.”

DraftKings has been busy over the last few weeks, selling the gambling media hub VSiN back to Musburger Media and closing down its non-fungible token business soon afterward.