DraftKings Bold Gambit

DraftKings has announced that it will add a conspicuous surcharge to winning bet slips in high tax states. The news has sent Gambling twitter into a frenzy.

My planned column for today has been pushed back thanks to DraftKings’ announcement on Thursday evening that it intends to add a surcharge on winning bets in high-tax states like New York, Illinois, Vermont, and Pennsylvania.

Apologies in advance if my thoughts are a little scattered; I’m still trying to process the news.

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DraftKings framed the surcharge as “nominal,” but as one commentator put it on X, “Not a math major, but the winners’ surcharge in IL seems to be 3.2%. This is a significant percentage. And the percentage in NY figures to be higher based on DKNG’s guidance thus far.”

The reaction to the news has been overwhelmingly negative, as the two polls below indicate (the comments are 100 times worse).

Even the company’s most ardent supporters were having trouble defending the idea. Some reached for an explanation, such as that it would mobilize bettors in high-tax states to pressure lawmakers or crossed their fingers that DraftKings’ competitors would announce the same policy soon.

Given the blowback, even if they intended to follow DraftKings’ lead, they are almost certainly reconsidering.

This lousy idea becomes demonstrably worse if DraftKings is on an island with this policy. Other operators can use the “nominal” fee as a wedge issue. It’s not the amount of the surcharge; it’s the principle.

And no, this is not a tax on winners. Everyone will be affected as even the worst Eddie Mush in the world wins quite a few bets; they just lose a lot more.

One reasonable argument I’ve seen is that this occurs in many industries. If and when others follow DraftKings’ lead, the customer will view this as a tax from the government and bring the issue out into the open.

Another possibility is that the announcement (several months before the surcharge is rolled out) is a trial balloon, made well in advance to gauge how unpopular the idea is.

That said, I’m of the same mind as the team at Regulus Partners, which wrote:

“To suggest this is brave is a euphemism, in our view, and the brand is already likely to be suffering damage. There is only one sensible thing for the DraftKings board to do now – publicly dump the policy, say sorry, and move on, while privately enquiring how on earth such a self-defeating policy could be publicly announced (alongside a US$1bn share buyback approval) – maybe while enjoying a Bud Light.”

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“We cannot think of a better way to destroy a brand proposition based on product, value, and customer service – and DraftKings has nothing else to offer. The fact that DraftKings’ justification is economically illiterate simply adds fuel to the fire, in our view.”

Let’s Chat About Price Sensitivity

I’ve written many times that the gambling public isn’t overly price-sensitive, and I don’t think anyone would have really noticed if SGP odds were a tiny bit worse or if it were to bump -110 lines to -113, as Ryan Butler’s poll from above suggests.

That raises the question: Why is DraftKings highlighting, bolding, and underlining the new surcharge?