Is this a… tariff?
FanDuel introduces a 50¢ surcharge in Illinois
OSB market leader takes a stand, DraftKings set to follow.
In +More: Resorts World Bet exits New York, Raketech sells tipping sites.
Penn gets a vote of confidence from Glass Lewis.
Venture playground: Discerning Cap’s new funding strategy.
Hard Rock Bet is growing – we know you know! And we want to bring in some more maestros to make beautiful music in our Sportsbook. You need to be among the very best in the industry to be considered for these roles. Are you up to it?
Fiddy cent
Just a lil bit: FanDuel will introduce a 50¢ transaction fee on all bets in Illinois to counter what parent company Flutter said was a “significant increase in the cost of operating” in the state, following the tax increase included in this year’s budget.
The new top-tier rate of 50% comes into effect in July and will target operators that generate more than $20m a year in GGR.
On LTM numbers, that means only FanDuel and DraftKings will pay the top rate while the rest will pay the new lower rate of 25%.
Flutter said it would introduce the surcharge in September.
You can find me in the club: DraftKings looks highly likely to follow suit, saying in a statement that it “anticipates taking action and expects to share more information soon.”
Jefferies estimated that without any mitigation the tax would amount to a ~$70m EBITDA headwind.
Cents and sensibility: Recall, last summer DraftKings outlined plans for its own player surcharge in high-tax jurisdictions, but following “customer feedback” the plan was swiftly dropped.
However, the backtrack came after Flutter CEO Peter Jackson told analysts on his company’s Q224 call last August that FanDuel had “no plans to introduce a surcharge for winners.”
Instead of the surcharge, in January, DraftKings introduced a subscription service in New York, whereby for a monthly fee of $20 players receive “stepped-up” odds boosts on all parlays.
That was then, this is now: Analyst sources suggested that when the surcharge idea had been put forward by DraftKings it had “seemed rather rash” and not all that thought through. However, with Flutter leading the way, it is thought the investment community is far keener.
Only you can stop this: Flutter said the surcharge would be "immediately removed” were the state to reverse its decision on the top-tier tax rate. Meanwhile, in the accompanying statement, Jackson raised the prospect of Illinois gamblers going offshore.
“We also believe the introduction of the Illinois Transaction Fee will likely motivate some Illinois-based customers to bet with unregulated operators,” he said.
Ball in your court: Sources close to the debate suggested it was unlikely the move would change any minds in Illinois, although there were suggestions there might be “blowback” depending on how the news landed.
But there is an argument that by moving now the operators might be able to head off other states considering tax hikes, including Ohio.
🎯Ready, aim: Chris Grove from EKG said FanDuel was right to “sound the alarm,” adding that Illinois had effectively quadrupled the tax rate in the last two years.
Fire: “That’s not tax policy, it’s target practice,” he added. “If operators don’t push back now, they may not have much runway left to recalibrate later.”
“If there’s no visible price to pay for hiking OSB taxes, why wouldn’t other states follow Illinois? The playbook in Springfield could become a blueprint nationwide.”
Can’t get a dollar out of me: Grove said tax hikes “may just be the opening act” and if states see operators “absorbing these increases without a fight, the next step could be one-time levies or creative licensing fees aimed at plugging budget gaps.”
“Gaming tax rates are a ratchet, not a dial,” he added.
Get rich or die tryin’: To lower their effective tax rate, operators can do one of three things: pass costs onto consumers, lean harder into adjacent products with friendlier tax treatment such as fantasy pick’em, or diversify into non-gaming experiences such as streaming, merchandise or live events.
“None of those options are easy, and most come with tradeoffs,” Grove added.
Meanwhile, EGR has reported that 200 staff at Flutter are “at risk” of redundancy, suggesting the move is being made against a "backdrop of increasing cost and regulatory pressure.”
The article suggested some roles could be relocated to continental Europe, with Romania and Portugal potential options.
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+More
Read ahead: Brian Quintenz, the prospective head of the Commodity Futures Trading Commission, appeared before a Senate confirmation hearing yesterday and spoke in part about prediction markets. Cutting to the chase, under his stewardship, the CFTC won’t be doing anything to stop sports-based prediction markets unless Congress or the courts direct otherwise, and if the tribes in California have a problem with that then they are free to open up shop themselves. For more see tomorrow’s Compliance+More.
Key quote: “I have always viewed market structure legislation as an opportunity to be both pro-customer protection and pro-innovation at the same time.”
Resorts World Bet has given up the ghost in the New York OSB market and will shut up shop on June 30. The site has struggled to gain any traction within the state despite its links to the Resorts World New York slots facility at Aqueduct Racetrack. The departure will leave eight OSB licensees in the state and frees up a license should any operator be looking to enter New York.
Raketech has divested its US-facing subscription tipping sites, including Winnersandwhiners, Picksandparlays and Statsalt, for €1.25m payable in three installments, with the first payment of €450k to be made on closing. The company said the US tipster business had generated a loss of €500k in Q2 to date. The sale follows a strategic review.
Rush Street Interactive has announced the launch of its proprietary online poker platform, BetRivers Poker, into Delaware, Michigan and West Virginia, following a successful debut in Pennsylvania last November.
Inspired Entertainment has issued £270m in senior secured notes due June 2030, with the proceeds from the issuance to be used to pay off £235m in senior notes due June 2026 and £15m of its £20m revolver.
Puts & takes
Out of orbit: The announcements by SJM, Melco Resorts and Galaxy Entertainment regarding the closure of their satellite casinos – and in the case of SJM bringing two of them under full control – is happening “faster than the market’s expectations,” suggested the team at Jefferies. However, the analysts said they did not expect any significant impact, given they represented only 1-2% of EBITDA at SJM and Melco. But, they added it “might impact local Macanese sentiment.”
Las Vegas: Finding new ways to reinvent itself is perhaps Las Vegas’ secret sauce, said the team at Citizens, who suggested the relatively recent pivot towards higher-spending customers is one such repositioning. While the city has seen its “fair share of ebbs and flows throughout economic cycles,” the analysts said the current status is “stable,” with those assets catering to the higher-end able to up their pricing.
Penn wins one
Vote for me! Penn Entertainment managed to garner the support of one of the proxy advisory firms, Glass Lewis, which has recommended that shareholders don’t vote in favor of HG Vora’s three board nominations and instead vote only for the two already accepted by the company.
This follows the news late last week that rival independent shareholder advisory firm ISS endorsed the activist’s push for three nominations.
Overlap: Quoting the Glass Lewis report, Penn said the shareholder body argued that while the appointment of Johnny Hartnett and Carlos Ruisanchez “appears likely to enhance board oversight,” the third nominee Bill Clifford’s profile “may overlap” with other board members.
The report stated it did not find “clear and compelling evidence” that, by restricting the voting to two board seats and retiring a third, the board “acted in bad faith or with the primary purpose of entrenchment.”
Smells like victory: The proxy fight is set to come to a conclusion next Tuesday. E+M PRO subscribers will receive an Earnings Extra setting out the argument from both sides tomorrow.
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Venture playground
User acquisition
Marketing dollars: Discerning Capital has partnered with underwriting tech firm PvX to launch a new financing initiative tailored for betting and gaming operators seeking to scale without diluting equity.
It has secured an initial $20m to provide user acquisition financing and is aiming to expand that to $50m within six to 12 months.
Discerning Cap has ambitions for the strategy to reach $100m if high-quality borrowers are identified.
Your flexible friend: “At its very core, we lend money to fund user acquisition spending for companies that have a demonstrated ability to generate good returns on their advertising dollars,” said Davis Catlin, managing partner at Discerning Capital.
The strategy targets businesses spending over $300k per month on user acquisition and achieving gross profit paybacks within nine months.
Instead of raising costly equity, operators access a credit line that flexes with marketing performance.
Loans cover 20-80% of monthly user acquisition costs and are repaid through revenue from customer cohorts. The capital is then recycled into future campaigns.
In focus – Betleap
Who are you? Betleap is a new iGaming startup, led by Adam Bernath, founder of iGaming Studio, and Etibar Namazov, founder of Betchill.
What’s the big idea? “We are creating an online casino targeting gamers, with a format that no iGaming brand has tried yet: an actual video game that matches the quality level of blockbuster games such as GTA or Call of Duty,” says Bernath.
He believes the gaming audience is “underserved” by traditional online casinos. “They don’t like button clicking and prefer virtual spaces to spend time in,” he adds.
“Betleap is the future of entertainment where gaming and gambling collide – and we’re at the helm.”
KPIs: Betleap’s target market is “500 million to 1 billion adult gamers globally.”
Funding backgrounder: The company has just started to seek funding to finish the development of the platform.
Growth company news
Previous in focus company Elantil has announced it has integrated the products of another company featured in focus, Tequity, with its RGS and product development services. Elantil will utilize Tequity’s iCasino development tools, including custom jackpots, promotional systems and mobile-optimized back office.
iCasino solutions provider WA. Technology has launched its Pick’Em Player Props product globally, centered on countries across Asia-Pacific, Africa and LatAm, with a particular focus on Brazil. The newly released tool is designed to put the player at the center of the wagering experience to bridge the gap between fans and sports.
What we’re reading: In the latest of its interview series, XST Capital CEO Joel Simkins talks to THNDR CEO Desiree Dickerson about the transition into iCasino, the focus on Bitcoin and product development strategy.
Event: iGB will be hosting a Startup Summit as part of its L!VE event at the ExCel in London on July 1 in association with Defy the Odds. The day-long program is designed to provide early-stage businesses with insights, connections and opportunities.
Venture capital firm Yolo Investments manages in excess of €500m in capital across 100 exciting fintech, gaming and blockchain companies. The Yolo Investments' Gaming fund, regulated by the Guernsey Financial Services Commission, has taken positions in fast-growth suppliers and operators, including Dabble and Enteractive. Yolo Investments (yolo.io) wants to hear from readers of this newsletter. Get in touch with your pitch, or for a chat about innovative products which can plug into our investment ecosystem.
Upcoming earnings
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Jul 23: Kambi, Las Vegas Sands
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