BetMGM, Caesars Won’t Follow Rivals with Illinois Surcharge, Says Analyst

In reaction to Illinois' most recent hike in the state's online sports betting tax, FanDuel and DraftKings (NASDAQ: DKNG) announced levies of 50 cents per wager this week. However, it seems that some other operators won't comply.

Barry Jonas, an analyst at Truist Securities, wrote in a letter to clients today that Caesars Entertainment (NASDAQ: CZR), the parent company of Caesars Sportsbook, and MGM Resorts International (NYSE: MGM), which owns half of BetMGM, might take advantage of the recent tax increase in Illinois to expand in the sixth-largest state.

"MGM and CZR didn’t immediately appear to be looking to follow FLUT (and now DKNG) in implementing surcharges. We do wonder if this could be an opportunity for either/both to gain market share,” observes Jonas.

Under the revised Illinois tax plan, operators will face a tax of 25 cents for each sports wager up to the initial 20 million bets made. That amount increases to 50 cents for every bet once 20 million wagers are surpassed at a specific online sportsbook. Similar to the graduated tax plan introduced last year in the state, Flutter Entertainment’s (NYSE: FLUT) FanDuel and DraftKings will face the most severe penalties under the new plan.

 

Surcharge Mistake Might Present Chance for BetMGM, Caesars

On Monday, FanDuel revealed that beginning Sept. 1, it will impose a fee of 50 cents on each online sports bet made in Illinois due to the new tax. DraftKings issued the identical statement yesterday.

Following those announcements, both operators have faced mockery, with some consumers turning to social media to claim the companies are penalizing customers, especially smaller recreational bettors, due to the tax hike. Certain analysts in the gaming sector think that smaller rivals may have the opportunity to take market share in Illinois from the two major companies due to the negative public relations impact of the surcharges.

Recent events suggest that DraftKings and FanDuel might not receive any support from competitors in the Land of Lincoln. Last year, DraftKings revealed a strategy to implement transaction fees in Illinois, New York, Pennsylvania, and Vermont, but ultimately scrapped that initiative since no other sportsbook participated.

DraftKings and FanDuel both announced they will remove the surcharge if the state collaborates with them on more favorable tax solutions, but there are no assurances this will occur. This might put the operators on "Surcharge Island," allowing competitors to take advantage of what may turn out to be a PR blunder.

Minimal Effect on BetMGM, Caesars Profits

In a note released earlier this month, Jonas indicated that the new Illinois tax plan might reduce BetMGM’s earnings in Illinois by $4 million, while Chicago-based Rush Street Interactive (NYSE: RSI) could face a $3.25 million loss. These estimates are significantly lower than the $40 million to $45 million and $35 million to $40 million challenges to guidance that FanDuel and DraftKings may face in the state.

Jonas did not refer to Caesars in that analysis, but the analyst anticipates little in the way of earnings challenges for either BetMGM or Caesars Sportsbook in Illinois due to the tax hike

“Both MGM and CZR see the recently announced Illinois tax increase as having an immaterial impact on their respective digital businesses as the tax structure primarily targets the larger players,” he wrote.