iGaming Daily

There is a saying I like to use a lot and that
saying is this, read the room. Well it appears

DraftKings did just that after a series of earnings
calls in which no competitors came close to

suggesting that they too might be implementing
a surcharge on betters in high tax states.

We're going to talk about DraftKings change
of heart and the flutter earnings call that

preceded it on today's episode of iGaming Daily.
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the description below. And with that out of
the way, I am Jessica Wellman, editor of SBC

Americas, joined by media manager Charlie Horner.
Charlie, I- We had Steve Radegon to talk about

the DraftKings surcharges last week, but it's
funny the way the world works because you thought

you weren't going to get to bang on it like
the rest of us, but here is your turn. What

was your thought on these surcharges when you
first saw them? Yeah, well, when I first heard

about this, I thought you can't do that, surely?
I mean, it was, yeah, pretty egregious from

DraftKings to come out and say, yeah, essentially,
the players can pay part of our tax bill for

us. I understand that businesses have to, or
well, choose to in some cases pass on costs

to their customers. That's generally the case
in business, but this surcharge was really

controversial and I don't think it was ever
going to land properly. And my favourite thing

about it was Jason Robbins' quote. when he said,
yeah, this is our calculation, this is what

we've worked out, and I'm fairly sure that all
of our competitors will quickly follow suit

and join us in doing this. And well, it hasn't
exactly worked out that way. Yeah, to give

you the exact words, because I love this one,
I think every company has to do what's best

for their own business. I think we believe this
is what's best for us and I would imagine that,

you know... If that's our calculus, then others
would come to the same conclusion. Hint, hint,

nod, nudge, nudge. And then everybody else was
like, let me get as far away from you as humanly

possible. You know, we talked about it last
week. I highly encourage people to listen to

Steve Ruddock and I kind of break this down
if you want some of the details on why this

was so controversial. And this week, I was seeing
a lot of people kind of asking procedurally

if they're even allowed to do this in some of
the states that they're in. Sometime, like,

would it be considered a change in house rules?
Would it be something that you have to get

regulatory approval on before you could even
implement? I think the idea, I don't know if

this has made it across the pond as much, but
here, every business, it seems like there's

a surcharge for everything. Like in COVID, we
started seeing in a restaurant that is just

like, I mean, it was literally just like a foods
expensive surcharge. It's hard to get food,

so you have to pay more. Sorry. You know, surcharge
pricing in ride shares and that sort of thing.

Is that common over there at all or no? We have
dynamic pricing in things like, yeah, taxes

and Ubers and that kind of thing. But but generally,
I don't think there's as much of a surcharge

culture over here as there is in the US. I mean,
I can't imagine this this. surcharge Malaki

and sports books ever being accepted in the
UK. Um, so yeah. Given y'all's reactions to

resort fees and hotel deposits, whenever you
come over here for events, no, I don't think

it would happen. Well, you know, it didn't go
over well here. So they announced on August

2nd, that this was going to be what they were
going to do in Illinois, New York, Pennsylvania,

and Vermont starting first and on August 13th
they sent out this statement. We always listen

to our customers and after hearing their feedback,
we have decided not to move forward with the

gaming tax surcharge. We are always committed
to delivering the best value in the industry

to our loyal customers, except when our CEO
gets on earnings calls and is just basically

like, yeah, I think they're going to hate it
and I think they're going to complain, but

I don't think they're going to change who they
bet with. So we're going with it. Yes, it's

so egregious the way that... Well, I didn't
listen to his exact comments on the earnings

call, but the way that you're framing it...
Yeah, I'm granted very much indulging. But

I have read the quotes and they do assume that
people will just not like it, but still bet

with DraftKings anyway because, well, our brand
is good, our product is great, but... Clearly

the will of the people is to not go through
with this and DraftKings has had to just perform

a dramatic U-turn because this, yeah, the backlash
has been so loud. Yeah, people may gripe about

it but I don't really see behaviour change because
of it was Robin's prediction and that was not

the case. So huge outcry on social media that,
you know, this is terrible, we hate this and-

I'll be honest, like he said the quiet part
out loud, do I think people are too lazy to

actually switch and they're just going to complain?
Yeah, but the goodwill was not there. I think

more than the customers saying they didn't like
this, the fact that earnings call after earnings

call happened, everyone was asked about the
surcharge and the answer was not. Seems like

an interesting idea. We're going to keep our
thumb on it. It was nope, no thank you. Not

doing, not getting near that one. We're good.
Yeah. I mean, it has been one of the first

questions that's been asked of all of the big
PLC CEOs in the last few weeks. And I guess

Robin's calculation was that everyone would
just follow suit. And if all the competitors

do it, then players are going to have to accept
it because that's the way that all the regulated

sports books are going. I think the advantage
that all of the other CEOs have had is that

they've been able to see the public reaction
on social media to DraftKings decision and

they have read the room and swiftly decided
that it's not for them.

Robbins and DraftKings into the corner, really.
Yeah, you know, the timing of this was interesting

because it was basically an hour after the Flutter
earnings call ended. And, you know, Rush Street

came out and very much was like, we're not doing
this, we're never doing this. I think Penn

and Flutter were both a little more like, it's
not really something we're thinking about doing,

but you never know. There was a piece of me.
maybe like 3% when the DraftKings announcement

came out that was just like, did they all plan
this? And DraftKings was like, we'll fall on

the sword and go first. You know, then when
Flutter, you've got a couple weeks and you

can say that you're thinking about it or whatever,
you don't want it to look like you all agreed

to do it at the same time or, you know, states
are going to get mad. But there was a piece

of me that wondered if they were all kind of
in on it together. the conspiracy theorist

in me, right? I don't know if that was a thought
that crossed your mind at all. Will Barron

Well, no, I mean, I'm going to put my tinfoil
hat on. I can understand it. And I understand

why they might have those kinds of conversations
as well because, and we'll discuss it even

more in the second half of the show, you know,
these tax rates in these states are high. in

certain states like Illinois, they're getting
higher. Sportsbooks didn't sign up for those

high tax rates in those states and they feel
like they have to do something to overcome

those increasing costs and taxes. again, I think
it all comes back to your opening line, Jess,

and you have to read the room on this one and
they've got to do things in a way that doesn't

impact the customer really, because well, it's
clear that they don't want to be impacted by

this, especially when it's not fair compared
to players in other states. So if you're in,

I don't know, if you're in... North Carolina
and the tax rates lower, why are you getting

a surcharge or worse pricing than those in New
York or Illinois? Yeah, I don't know, you know,

there's some speculation that this is like a
grassroots effort to get betters to stand up

and be like, DraftKings should pay less taxes,
which is just a sell. I will kind of say, it's

not that these... What we saw from these earnings
calls collectively in these states where it

is a very high tax rate up to now, you have
not seen too much disparity in how betters

are treated state to state. What we have heard
is in most of these other companies have concluded

that they're going to have to curb promo spend
in these states and they're going to have to

curb marketing spend in these states. So you
may see slightly less generous offers in New

York, Pennsylvania, Illinois. I think especially
given that Pennsylvania and Illinois are a

little more on the mature side,

it's understandable that they would potentially
curb back spending. Rush Street said they've

cut back extensively on affiliates and that
they're going to focus on retention and other

ways of acquiring customers. It won't be the
overt surcharge and I don't think it's one,

you know, if you've already signed up, you've
gotten your offer. You know, will you be getting

as many offers in the future as your friends
in Kentucky or Indiana or wherever? Probably

not. So there will be some impact. I think we
have finally reached the point where you're

going to see some differences.

than the surcharge because you're not penalising
your players, you're just being less generous

is the way that you can package it and like
you said some of these states are getting reaching

maturity so naturally you would reduce the number
or amount of promotions that you're using in

those jurisdictions anyway so I think that's
a natural of progression of the industry but

to add a surcharge is yeah, I can understand
why there's so much backlash. And only if you

win. If you keep losing, we'll cover it. If
you win, that's when we're gonna need you to

contribute a little more. Now, I feel like we
have done actually, I don't think I feel, I

think factually we have only talked about problems
for DraftKings the last three weeks of the

pod. because we had Rainmakers in that lawsuit
as well. It has been a rough month for them,

but let's just talk kind of optics for a second.
Is all of this stuff internal industry optics,

or do you think this stuff seeped into the mainstream
enough that this might have an impact on, you

know, DraftKings and its market share? To be
honest, I can't see the Rainmakers lawsuit

and the closure of that. sort of division being
that much of a difference maker for the average

player. But I think the surcharge probably has,
especially amongst players in those states

that would have been impacted if they had gone
through with it in January. Because from a

player's perspective, you've already had the
blow of, oh well this is what DraftKings thinks

of me and I should be paying more than others.
that might have an impact. Will it have a genuine

material impact on market share? I'm not sure.
I don't think that the players will think,

well, they might have added a surcharge onto
my winnings, so I'm going to close my DraftKings

account and go to ESPN Bet or FanJewel. I'm
not really sure, but I think optically they

have taken a little bit of a hit. Is their reputation
as a company maybe a little less shiny? Sure.

Although I will say based on what I've seen
on social media, the payouts on Rainmaker's

stuff was expected to be pennies on the dollar,
but I didn't see people really griping so it

seems like it was reasonable enough, which is
a good thing. They did walk back this decision,

which is a good thing. So, it's not like they're
just completely slapping customers in the face

all the time. It does seem like. They are reading
the room. They just have to be in the room

a lot longer than the rest of us before they
can get the vibe. All right. Now that we've

talked about DraftKings, we're going to take
a quick break, come back and talk about DraftKings'

biggest competitor and their Q2 earnings call.
Welcome back to iGaming Daily. Now, I mentioned

before that the timing of the DraftKings surcharge
followed the Flutter Q2 earnings call. Things

were large. I mean, I'm not going to run down
numbers. You guys know things were largely

very positive for Flutter in this past quarter.
They have moved over to the New York Times

or the New York Stock Exchange and really focused
on, you know, the North American and in particular,

US market. The one number I will highlight,
they said that in terms of market share, their

National GGR for sports betting market share
is 47%. They've got a 25% share of online casino.

And in North Carolina, where we haven't heard
operator data, they're saying they've got 59%

of the market there. So a good year, a good
quarter up to guidance. The thing that really

attracted my attention though, was a comment
by CEO Peter Jackson about Illinois. The Illinois

structure, Charlie, I know we talked about that
they double or they increase the tax rate.

What they also did was divide it into tiers.
And we saw in the first earnings report out

of Illinois since this implementation, how that
works, where if you fall into a certain range

of revenue, you get taxed at a higher rate.
If you don't hit a certain range, you get taxed

at a lower rate. And Peter Jackson just straight
up called it wrong. I- I think that introducing

a graduated tax system that punishes those who
have invested the most to grow their businesses

wrong. I think it will drive customers to offshore
operators or potentially to onshore operators

who are offering unregulated and untaxed parlay's
under the guise of sweepstakes." There's a

whole lot of haterade in that sentence. So let's
break it down. What did you make of this comment?

I thought it was very, very candid, very open.

just listening to the call the way he said it
as well. You know, he slowed down and broke

down the question into multiple parts and really
focused on Illinois as something that he was

clearly agitated about. So I think, yeah, he's
not afraid to speak his mind on this issue

and again, I can understand where he's coming
from in terms of the way it's impacting Fanjul

over other operators. I would say another controversial
comment from a gambling CEO. It's interesting.

Generally in this industry, you never badmouth
the lawmakers and the regulators. And that

patience seems to be running a bit thin. We
saw it in a hearing in New York last year.

Now we are hearing it about Illinois. Steve
Reddick on the podcast we did last week mentioned

Some of the attitude about Draftkings and Fandual
was allegedly part of the reason. They were

like, we're not just gonna double it, we're
gonna make sure you pay more than everybody

else. So I question the effectiveness of this.
I mean, it's done, they're not gonna undo it

and I appreciate the candor of it. I will say
though, he kind of elaborated on this answer

at another point in the call where On paper,
yes, it seems like it sucks the most for DraftKings

and Fandl that they have to pay into a tax structure
that is higher than other operators. But Jackson

argued that in other aspects of Flutter's business
where they've had these kinds of high taxes

or tiered tax rates, what they've actually seen
is since everyone, the tide has risen on tax

rates, smaller operators are going to struggle
to cover that cost more than bigger operators

are. and they're going to have to cut pricing,
cut marketing, cut promos. And as a result,

as much they basically were like, this is like
point blank, the percentage that the money

we think we're going to lose in Illinois. But
we also think we're going to get about 10 percent

of it back because our model suggests other
people that are smaller are going to get hit

by this so hard that they will end up jumping
ship to us. Yeah, I heard this as well and

I thought that was absolutely fascinating that
they'd modeled this on other markets where

there were similar tax rates. And I think it
goes to something that Adam Greenblatt of BetMGM

was saying, I think he told the SBC Leaders
magazine last year where he was predicting

that essentially the smaller operators in the
US are basically on sort of numbered days in

terms of how long they can keep on going. It's
something that we have seen. We've seen a number

of market exits this year over the last 12 to
18 months. And I guess Peter Jackson and Adam

Greenblatt have predicted this is going to carry
on into the future where there are sort of

these, what they would label unsustainable tax
rates. Yeah, I'm curious. It's interesting.

Alex Kane, who's been on the pod before and
is very outspoken on Twitter. has said in the

past advocating for, you know, sport trade as
a smaller operator paying less taxes or a tiered

tax rate that he thinks it would help them.
But I think what Jackson's kind of saying is

in tandem with the massive increase in the overall
tax rate, you're actually helping us more than

you're helping small operators. It's interesting.
I'm very curious to see how things are going

to go. I know my colleague Justin Byers was
exhausted by the time he got done trying to

understand this new revenue report with the
tiers and whatnot and how it works. That I

think we need to see a little more data before
it fully plays out. But it was interesting

that they're saying, you know, we think we're
going to lose X amount, but we'll probably

recoup. It could be lower because other operators
are going to struggle more than we are.

quick note about another comment he made. It
seemed like a veiled jab at GG Poker with the

acquisition of the World Series of Poker. Jackson's
statement, GG Poker operates in a lot of markets

that we wouldn't be prepared to operate in,
so I think there's some interesting questions

there for some of those people involved. Yeah,
that was spiky. Yeah, so I- I don't follow

the international scene as much as the rest
of you guys. I do understand that GG Poker

is in a lot of very unregulated markets. I've
heard rumors and speculation that perhaps some

of their geofencing and things allows for people
with VPNs and very simple spoofing technology

to get in. So. I think there's always been speculation
here in the States. There's a reason they only

have a supplier license in Pennsylvania and
they've never pursued licenses anywhere else.

Some of that is the WSOP is on and whatever
888 is called now, contract for another year,

Evoke, right? Evoke, yes. Okay. I can't keep
up with all of these very new agey rebrands.

So some of it is that. But- They've never really
come into the States and the whispers have

always been, can they muster up the suitability
necessary? And I, it seems to me as I'm reading

this, that Jackson might be raising an eyebrow
in that general direction. Yeah. I think he's

probably raising more than one eyebrow. Maybe
a finger and pointing it. Yeah, absolutely.

Again, again, it was another sort of, um, big
moment in, in the earnings call. A lot of the

time these earnings call can be quite dry, not
too many lines, a lot of financial data, but

this Flutter one, there were quite a few interesting
news points, which was great from a journalist's

perspective. Yeah. It was Feisty Man pointing
fingers at lawmakers, at the WSOP and GG Poker

deal, and apparently the new favorite thing
to pick on, you know. Enjoy the run, daily

fantasy sports against the house, sweepstakes,
casinos are the new target du jour for these

operators. All right, we have completely run
out of time, so I am gonna go ahead and wrap

up, but Charlie, thank you for your insights.
I'm glad that you got to weigh in on one of

the more absurd, weird choices we've seen in
the industry this year. I'm sure we'll have

something to say about DraftKings or someone
else on our next episode of iGaming Daily,

so be sure to tune in.