FanDuel, one of the leading sportsbooks in the country, has warned that increasing taxes on sports betting will make running the business unprofitable.
Speaking at the National Council of Legislators from Gaming States (NCLGS) conference on Friday, FanDuel’s head of state government relations, Cesar Fernandez, said sportsbooks are already operating on small profit margins.
According to Fernandez, for every $100 wagered, companies can generate $1.55 in realized profit. Even modest tax increases could see that margin disappear and businesses become unprofitable and unsustainable.
Fernandez believes that states believe the companies generate more profit than is really the case. He stated, “We view ourselves not just as a net contributor to these states but also a partner in their state funding.”
“But we’ve had a little bit of a narrative shift as we’re engaging with policymakers throughout the country, and that’s now ‘tax gambling companies, they can afford it.’”
Tax Costs Mounting For Sports Betting Companies
In his presentation, Fernandez laid out the costs incurred by betting companies. The national hold percentage is around 10%, but companies have many costs that greatly reduce this profit.
First, companies must pay federal and state taxes, including on bonus bets given to customers, which drops the profit margin by more than 25%.
Costs from marketing, staff, and other operating expenses, then reduce the amount of profit down to just 1.5%. In some states, such as New York, an additional tax on gross gaming revenue is as high as 51%. Many other states are also increasing their rates, with hikes approved in Louisiana, Maryland, New Jersey, and Illinois this year.
The tax in Illinois that charges large-scale operators, such as FanDuel, a fee of $0.50 for every bet accepted, was seen as unsustainable by FanDuel and fellow leading sportsbook, DraftKings. As a result, the two companies have passed the fee directly onto the user.
Illinois bettors will have to pay an extra $0.50 for every bet they place at the two sportsbooks. Fanatics Sportsbook also announced it would follow suit and add a charge to bets in the state.
Legalize Online Casinos To Offset Increased Costs
Fernandez advocated for increased legalization of online casinos to make up for the rising costs of operating betting companies. Currently, seven states in the US have passed legislation to allow online casinos, while efforts in various other states have been proposed by lawmakers.
There are current bills under consideration in Ohio, Maine, and Maryland, while New York, New Hampshire, Illinois, and Massachusetts may also make moves to legalize the platforms.
Legalization would also reduce the impact of unregulated platforms, such as sweepstakes casinos, says gambling Attorney Brad Fischer. Fischer represents FanDuel as well as other major sportsbooks. Speaking at the NCLGS conference, he said unlicensed operators are spreading, “It’s happening right now and it’s going to only become more prevalent in the future, and I don’t say that as some like fear mongering tidal waves be on us, this is just reality.”
He similarly warned states of targeting the regulated platforms with increased taxes, stating, “There’s always going to be something, and if you just squeeze tighter on what you have right now, it’s not going to do anything about that, and it’s going to ultimately be a disservice.”
Adam is an experienced writer with years of experience in the gambling industry. He has worked as a content writer and editor for five years on sites such as Oddschecker, CoinTelegraph and Gambling Industry News, bringing excellent knowledge of the world of sports betting and online gambling. Adam focuses on emerging stories in the ever changing landscape of betting in the US. Read the latest on prediction markets, changing legislation, and sweepstakes.
