Illinois Hikes Tax on Sports Betting to 40%: Impact Analysis

SportsGrid

Watch Illinois Hikes Tax on Sports Betting to 40%: Impact Analysis - SportsGrid on Dailymotion

Transcript

00:00 [MUSIC]

00:03 Welcome back to News Bar here on Sports Grid.

00:05 Groundbreaking news in the world of sports betting that's seemingly flying

00:08 under the radar here a little bit.

00:10 We'll bring in Matthew Waters for the latest.

00:12 As Matthew, we got the news that the state of Illinois is bumping up their

00:18 tax rate on sports betting to an unprecedented number of 40%,

00:24 which is only 11% less than the state of New York.

00:28 And now higher than Ohio, if I'm not mistaken, and

00:30 higher than Pennsylvania as well.

00:33 The only thing that I would say is, as well, with that little asterisk for

00:36 the time being, because I can only imagine that the states and

00:41 the market share sizes like they are now, remember,

00:43 Illinois is a very high market share.

00:45 Chicago is one of the top media markets in the country, so it makes some sense.

00:49 But I gotta tell you, Philadelphia, not far behind.

00:52 Cleveland, Ohio, not far behind.

00:55 I would guess that precedent is now set and others will follow.

01:00 By the way, thanks for coming on the show.

01:01 [LAUGH] >> Yeah, I always happy to be here,

01:03 Craig, especially when we have a story like this.

01:06 That, yeah, when it comes out that people are raising tax rates,

01:10 it doesn't always get through to the consumer what that can mean.

01:14 And it can have some big implications for sports betting here and

01:18 what that means for consumers in the long run.

01:20 Basically, Illinois, they had the idea of raising it to 35%, a 35% flat tax.

01:27 And luckily for some of the smaller guys,

01:29 that got pared back a little bit in the Senate.

01:31 So now we're looking at a tier that has, if you make less than 30%,

01:36 you're gonna be taxed at 30 million, excuse me, you'll be taxed at 20%.

01:40 That goes all the way up to being taxed at that 40% on your gross revenue

01:44 of 200 million or more for the year.

01:47 There's only two operators that hit that, Craig, and

01:49 obviously that's DraftKings and FanDuel.

01:52 I checked the stock prices before we came on and they're not great, Craig.

01:56 13% down almost for DraftKings at more than double its average daily volume

02:01 already, and FanDuel in the US, they were down close to 7%.

02:07 I believe that puts them near a new low.

02:10 Remember, they just listed on the US not too long ago, but

02:13 still not great for these operators.

02:16 There's a note from Carlo Santorelli at Deutsche Bank that really kind of

02:20 breaks it all out great.

02:22 And you look at what FanDuel paid last year.

02:25 FanDuel paid $68 million in taxes at that 15% tax rate.

02:30 They now would be paying, based on the last 12 months numbers,

02:35 they'd be paying an additional 81.6 million in taxes.

02:39 DraftKings is similar, 66 million in taxes last year.

02:43 If we looked at the last 12 months, another 66 million in taxes on top of

02:49 that based on the new tax rates.

02:51 And so, yeah, you know, Craig, we have to look at what exactly this means for

02:58 Illinois right now, and I know we'll touch on some other states later, but

03:02 like you said, Illinois is huge.

03:04 And they're not even done building out their sports betting market,

03:09 except now I think they are if this goes through.

03:11 Remember, they have some of those online-only licenses that are available

03:16 at 20 million each, which you might be able to make that math work somehow if

03:22 the tax rate was still 15%.

03:25 It's tough now.

03:26 It is going to be tough for these operators to be able to continue to keep

03:31 up their level of investment that they had in the state when you have such a

03:36 jump like this.

03:36 And yeah, of course, it is not up to the state to worry about what the

03:43 companies do, how much money they make, right?

03:46 They agreed to be here, and that's that.

03:51 But it's tough, Craig.

03:54 Now, we haven't seen it yet.

03:55 We have not seen the effect put onto the bettors.

03:59 We have heard in New York, you know, DraftKings said that they may have to

04:04 start to offer worse odds, and that was said last year.

04:07 And we've heard similar things from other companies, but we just haven't

04:12 necessarily seen it.

04:14 We have seen worse odds come through in the ways of different Parley products

04:19 and what they're doing.

04:20 You know, DraftKings obviously now has the Parley product that will allow you

04:24 to lose a leg or two of your Parley, but naturally, you're not getting the same

04:28 kind of odds as a true Parley with that.

04:31 So the operators have been finding ways to find money here or there, but honestly,

04:37 Craig, that was really just making sports betting profitable and, you know,

04:44 attractive for these companies.

04:46 Before PASPA in May 2018, the argument was that these companies made about 5%,

04:54 5 cents on the dollar for every dollar that's bet, and that is trending up

04:59 because of these Parleys.

05:01 And so when you start to see that operators are holding more than what they

05:05 said they would, you know, when they were lobbying for this legislation and

05:10 lobbying for the lower tax rates because it was a low-margin business,

05:15 now the conversation has changed with how they're making business.

05:18 And so I do understand the conversation changing in the legislatures.

05:24 Just have to make sure that you're not damaging or potentially ruining the

05:29 industry in front of you.

05:30 Illinois, yes, big numbers out of Illinois.

05:33 I doubt operators are going to stop operating in Illinois, but will the

05:38 product look different?

05:39 We're getting to the point where it may have to in some of these states that are

05:43 making the move.

05:44 - Yeah.

05:45 And there is a fight going on, by the way.

05:47 It seems like there is this group that's trying to step up and stop the tax rate,

05:52 and there's also a sports betting alliance that is going to try and keep the

05:55 customers in tap too.

05:56 Do you think they have any success with this or this just basically just keeps

05:59 moving?

06:01 - You know, I'm not sure, Craig, because the SBA, the two biggest partners there

06:05 are DraftKings and Fandul.

06:07 So, you know, they are out here pounding the pavement.

06:10 They have pop-ups coming up on their apps in Illinois saying,

06:14 "Email your legislators."

06:16 They're trying to do as much as they can, and it didn't work in Illinois.

06:22 So, I don't know what kind of influence they're going to have moving forward.

06:30 - Let's now get to the main story of the summer, which is wondering whether or not

06:34 we're going to have college player props coming up in the fall.

06:38 College football season, Matt, as you know, is coming up in August here around

06:41 Labor Day.

06:41 It's not that far away.

06:43 You know, different states are taking different sort of stances on this.

06:48 The NCAA president, Charlie Baker, is involved as well.

06:51 What can you tell us the latest in?

06:52 - Yeah, I would encourage anybody interested in this to head over to

06:56 legalsportsreport.com.

06:58 Check out Mike Mazzeo's article on this.

07:00 He does a great job.

07:02 There are a lot of different viewpoints in this article that I simply can't get

07:06 across to you in this one segment.

07:09 But we know that Charlie Baker wants the end of player props around the U.S.

07:16 on college players.

07:17 And it's interesting to hear how that is playing out with some people.

07:23 You have the NCAA managing director of enforcement, Mark Hicks, saying,

07:27 "Yeah, you know, could that move people offshore?

07:31 Yeah, it could.

07:32 But also, we encourage federal law enforcement to go after the

07:35 unregulated black market."

07:37 So the NCAA, in Hicks' point of view, at least is saying, "Well,

07:42 you know, we're not the only ones that could be doing something about this.

07:45 The federal government should be doing something about this."

07:48 Obviously, it's not that easy when it comes to shutting down these black

07:51 market operators, Craig.

07:53 It takes a lot of...it takes money trails, it takes paperwork to find,

07:58 and the offshore guys are really good at not letting that happen.

08:03 One of the other things that I thought was a great quote came from a regulator,

08:09 an unnamed regulator, state regulator, that said, "Do you really think people are

08:13 just going to comply with this and not gamble anymore?

08:16 There's always going to be a-holes on the internet.

08:19 First, we're banning college player props.

08:21 At what point does it stop?"

08:23 So we're not done with this conversation.

08:26 We have had some states, we've had West Virginia, we've had Ohio,

08:29 we've had a couple others step up and say, "Yeah, let's end this."

08:33 But others are saying, "No, we don't want to do that," and others are still just

08:37 up in the air on it.

08:38 We know from Ohio, it was less than 2% of the handle on these college prop

08:43 bets total that the operators had taken.

08:45 So it's not a huge section of the market, but it's tough because you are sending

08:51 people that want to bet on that to the black market.

08:53 And that has to be tough for these regulators to weigh out.

08:57 So it's still a very much so ongoing conversation.

09:01 - Yeah.

09:01 And again, limiting some of the bets could be the possibility for the future

09:05 with these props.

09:06 But again, we got to figure this out.

09:07 We got three months to go.

09:09 All right, Matt, thanks for coming on.

09:10 Great to see you again.

09:11 Have a great rest of your week.

09:13 - Thank you.

09:13 Take care, guys.

09:14 ♪ [music] ♪

09:17 [BLANK_AUDIO]

Category

Transcript

Be the first to comment

Recommended