00:00 Speaker a
Sports book operators in Illinois, which are under pressure, taxes on bets. Legislators passed the budget, which included a 25 cent tax per bet in the first 20 million online sports bets. After that, the tax rate is increased to 50 cents per bet. For more information on what this means for sports betting, let’s go to Citizen Senior Stock Research Analyst, Jordan Bender. Jordan, it’s great to see you on the show. So today these names are under certain pressure, Jordan. I’m watching DraftKings drop about 6% and Flutter drop nearly 3%. If I were an investor, Jordan, I would have promised both names. How worried should I be? What does this mean for their bottom line?
01:46 Jordan Bender
Hey Josh, it’s great to see you as usual. You know, we left at work on Friday and there really was nothing on the weekend. Less than 24 hours later, Draftkings and Flutter, who were hit with huge attacks by Illinois tax increases. You know, today’s investors’ reaction, you can see it in stocks, and the stocks here are indeed blue. Unexpectedly. It’s a bit scary, we’ve seen tax increases as part of the industry. This is expected, and it is the practice of all uniform taxes. Fixed tax has just appeared. This is done on a hierarchical tax basis. This is the second consecutive year, and it catches investors off guard. Well, you know, the scary issue here is that the sight behind some tax increases is getting shorter and shorter. Illinois, this happened in less than 24 hours. This is not anyone’s radar. Well, these companies will have to work hard by how to adjust their business model. But, you know, we are both market upper-tier forms on both names. We are optimistic about the industry. We think there are actually ways to offset some of these tax implications, and for DraftKings we estimate it to be about 80 million per year, compared to about 85 million per year for Flutter per year.
04:23 Speaker a
Those ways that can offset it, Jordan, those levers you think they can pull, guide us through it.
04:48 Jordan Bender
So, historically, what we’re seeing is that you take costs out of the cost structure. Your sales and marketing will both decline. Some technology costs may fall. I think this time, given that this is Illinois, it’s happening for the second consecutive year. The current effective tax rate exceeds 50%. And, these companies are reaching the point where Illinois profit and loss or even New York profit and loss because given the height of tax revenue, they no longer make much money. So, on the surface, there are ways to offset this. Well, you’ll make people bet more, you’ll make people bet more parlays or longer legs. Here, the last interesting point I’ve had a lot of discussion with investors here today is that we see this, like a ride-hailing app with Uber and Lyft, they actually show you the actual surcharge or impact of each ride for the receipt. Well, you know, today, investors have been bringing up the idea, you know, Illinois BET Slip paid 25 cents per bet. Then besides that, there is actually an increase of 50 cents. But, only showing the end consumer is what the state does. Well, you know, today and yesterday’s message from Draftkings and some of these sports betting operators was that they would rather pass it on to consumers this time, rather than having to take a hit on their own. Therefore, this time the tone added a little change to the historical tax rate. But you know, we talked about the serious impact on drafts and confusion. We don’t think you’re going to get close to this, and I think consumers will be the first to take the brunt here.
