¶ Intro / Opening
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. iGaming Daily is presented by OptiMove, the
number one CRM marketing solution for the iGaming market. If you're not solving your marketing problems with OptiMove, you still got a time, plenty of time really to get in on it. You can claim a first free month too, optimove.com forward slash SBC. The link for that is in
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
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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.