DraftKings' Surcharge Fiasco and Stock Rebound Explained

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00:00All right, speaking of apps, DraftKings has had an interesting summer, initially announcing

00:08that they were going to raise the juice on a lot of sports betting by basically saying,

00:12we're not raising the juice.

00:13We're just going to take money out of your winnings.

00:15What the heck?

00:16That backfired in a big way.

00:18They walked it all back.

00:20Stock went down, but now all of a sudden we're seeing a rebound here, Sam, what are you attributed

00:24to?

00:25Yeah, it's really been an interesting story with this whole DraftKings surcharge fiasco.

00:30It's kind of the story that never really goes away, even though it doesn't exist anymore.

00:35They had this plan to charge the fee on winning bettors for about 12 days, and then they got

00:41rid of it, citing negative customer feedback.

00:43But that came after the CEO said that it would take a lot of top line deterioration, basically

00:49DraftKings losing business to get rid of the plan.

00:51So it's been a weird story, but the CEO, Jason Robbins, made some comments late last

00:57week about the surcharge, about what went into the thinking and about what they can

01:02do in the future.

01:03Essentially, they proposed the fee as a way to mitigate high taxes in a few states like

01:10Illinois, like New York, Pennsylvania, where the tax rate is about 25%.

01:15That came right after Illinois raised its tax rate, which DraftKings said it was going

01:19to impact its business by about $50 million next year.

01:23So this is essentially their way of passing it down to the better, making it up.

01:26And they said, hey, we're going to be able to give you the same promotions, same odds

01:31everywhere if we do this.

01:33Now they rescinded it, citing negative customer feedback.

01:36But Robbins said they're now exploring a new, more favorable option, which will allow them

01:41to mitigate these high taxes and deliver customers a really good experience.

01:45So that's raising my eyebrows.

01:47I'm wondering what exactly you're going to do if you're not going to charge a fee on

01:50winning bettors.

01:51A lot of people have speculated, hey, maybe they'll change the odds in different states.

01:55Maybe they'll make the pricing different.

01:57That certainly would not be as transparent on the front end.

02:00You wouldn't be seeing a fee coming out of your bet before you place it.

02:04You would just see worse odds and really have no way to compare it unless you're looking

02:08at other sportsbooks or other states.

02:11We haven't seen sportsbooks do that yet.

02:12That's something they've really threatened.

02:14The Sports Betting Alliance, which lobbied very hard against the Illinois tax hike, was

02:21talking about, hey, this is going to drive people to the black market.

02:23We're going to make odds worse on legal sportsbook.

02:26We haven't seen that yet.

02:27So that's not quite off the table.

02:29Robbins didn't specify that that's what they're going to do.

02:32FanDuel has come out and said, we're not going to do anything like that.

02:34So it'll be interesting to see how this develops throughout the season and interesting to see

02:38how it develops if more states consider tax hikes of their own.

02:43Does that force DraftKings to try to come up with another solution?

02:46Robbins seems pretty proud of the way they handled it.

02:49He said it was very deliberate.

02:50We tested something.

02:51We tried it.

02:52We got negative customer feedback.

02:54We never actually went through with the fee.

02:55So no harm, no foul.

02:58That's not exactly lining up with the comments he made before they started it.

03:01So it's still a little strange that we even had this to begin with, but largely the impact

03:06on the stock, on the company has been forgotten.

03:08DraftKings is back up to about $36 a share, which is about what it was three or four months

03:14ago before it really took a nosedive after this whole surcharge plan we've seen throughout

03:19football season.

03:20The stock does really well in the first couple of weeks.

03:22So I'd expect that to kind of be the same story here, especially as Wall Street says,

03:27you know, they never actually did this.

03:28So it's just a weird kind of thing that happened and we're trying to move on from, but I'm

03:32not going to forget about it.

03:33We're going to see what they come up with in the future.

03:35Sounds like they're certainly not done with mitigating this whole high tax burden.

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