Why Draftkings Stock Cratered And May Fall Further
According to data provided by S&P Global Market Intelligence, shares of DraftKings (NASDAQ: DKNG) dropped by as much as 15.7% in trading this week after the Illinois Senate approved a new budget that included a big increase in online sports betting taxes. Shares closed the week down 14%.
Taxes could go up greatly
Nothing has been signed into law, but the Illinois General Assembly passed an amendment to tax online sports wagers by up to 40%. That would be an increase from the current tax rate of 15% and would be taken out of gross revenue, not net income, which is how federal taxes are paid.
Massachusetts was also considering raising taxes on sports betting, but that didn't pass. It seems the growth of online sports betting and iGaming has attracted the attention of lawmakers, who see this as an easy target for new taxes.
The challenge for online gaming
Gambling has always been a source of revenue for states and countries where it's legal, but the tax rates can be very different. Where physical casinos are built, there's an incentive to keep tax rates reasonable because casinos provide jobs and attract tourists to a region.
Online gaming, where people can gamble at home, doesn't provide the same regional benefits. Development jobs and other workers may be in other states or foreign countries, providing little local benefit outside of tax revenue. So, why not raise taxes?
I don't think this trend will end soon, which is why I see DraftKings continuing to have problems reporting consistent profits long term.
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
