DraftKings (DKNG) and FanDuel-parent Flutter Entertainment (FLUT) face a 140% hike in taxes on online sports bets in a new budget approved by the Illinois Senate over the weekend. Both DKNG and FLUT fell in early Tuesday stock market action, extending losses late last week.
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Online Sports Betting Tax Hike
In a Tuesday analyst note, BTIG said it expects DKNG and FLUT to pay 36% and 37% tax rates, respectively, on gross gaming revenue under the state’s 2025 budget. That would amount to a tax hike of 140% to 147% compared to the current 15% tax rate.
However, BTIG added that it anticipates that the online sports betting firms can offset the tax hike by implementing cost controls.
Before efforts to mitigate the tax hike, Citi analysts said it could cost Flutter $94 million if in place over a full year. Mitigation may come from lower promotional spending, the firm said.
BTIG analysts said they don’t see momentum for similar tax hikes in other states. Last week, the Massachusetts State Senate defeated an amendment that would have hiked the state’s sports betting tax from 20% to 51%, which would have matched New York’s for the highest in the nation.
Still, state budget pressures seem to be building after a fairly benign stretch, so this is worth watching. Deutsche Bank analysts wrote that other states may follow, when needs arise, highlighting Michigan and New Jersey, which both have relatively minor tax rates on online sports betting.
Oppenheimer analyst Jed Kelly wrote in a Tuesday note that tax hikes by additional states could accelerate DraftKings/FanDuel consolidation, given cost efficiencies.
Kelly recommended buying DKNG on pullbacks tied to unfavorable legislation, keeping an outperform rating and 60 price target.
DKNG, FLUT
DKNG slid 11.2% to 36.24, a four-month low, in early Tuesday stock market action, after sliding 7.7% last week. FLUT fell 6.2% to 191.49, after dipping 1.2% last week.
FLUT had been working on a cup-with-handle base with a 212.37 buy point.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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