DraftKings made a controversial decision to collect a surcharge on net winnings of bettors in four states including Pennsylvania, New York, Illinois and Vermont. It appears Michigan bettors will not be affected in any way by the news.
DraftKings implemented the surcharge in the four states that impose a 20% or higher tax on operators. Michigan’s tax is a reasonable 8.4%, one of the lowest in the US. Only Iowa and Nevada have lower tax rates, both at 6.75%.
Note to Michigan bettors: Don’t worry about the surcharge
Thanks to one of the lowest tax rates in the country, DraftKings Sportsbook Michigan will not be affected. The company had no reason to include the Great Lakes State in its new surcharge plan. And it won’t ever have to, unless Michigan regulators ever decided to increase tax rates on gambling operators.
Additionally, MI operators are allowed to deduct promo spend from gross revenue before taxes are applied, which makes Michigan one of the best markets in terms of tax structures. Because of that, the state’s effective tax rate is actually at 5.1% lifetime, and 6.8% for the calendar year.
Of the 8.4% tax, Michigan spreads the collection across three different funds:
- Internet Sports Betting Fund (65%)
- City of Detroit (30%)
- Michigan Agriculture Equine Industry Development Fund (5%)
The surcharge came on the heels of Illinois increasing its flat rate of 15% all the way to 40% for market leaders DraftKings and FanDuel. The DraftKings decision, in part, is a ploy to dissuade states from considering raising tax rates on online betting operators. CEO Jason Robins said on the Friday morning call:
“I do think this is something that may make some states reconsider because now they may be hearing more from their citizens that they don’t like it…But certainly we will continue to advocate for taxes that allow us to compete more with the illegal market and I’m hopeful and I believe most states do see the vast majority of states around the country have tax rates of 20% or under. It’s just a handful that don’t.”
Once again, for those using Michigan sports betting apps, there’s nothing to worry about.
DraftKings embracing transparency and customer feedback
While the decision to impose a tax on bettors is certainly controversial, DraftKings’ transparency should be applauded. Should anything change in Michigan, the company will certainly let bettors know.
As Robins pointed out, DraftKings could have easily swept this under the rug or tried to hide it from customers by burying the surcharge in odds/pricing or another avenue. But it appears they decided honesty is the best policy.
“In this case, we’re obviously subsidizing a chunk of it,” Robins said. “We just thought that was most in line with how it’s typically done versus trying to obfuscate it, which isn’t consistent with our commitment to be transparent to our customers and be very customer-friendly.
“I know there’s maybe benefit to hiding it because maybe people don’t notice, but I think over the long term, customers appreciate transparency and even if they don’t love that their state implemented a high tax and some of that is being passed along, I think they prefer that to not knowing if it was buried in the pricing or something else.”
It’s possible that Robins and DraftKings reverse course on the surcharge decision, but apparently that will in part be up to the customers.
“We’re paying close attention to customer feedback and you know, if we hear anything that makes us change our mind, we’ll certainly let you know,” Robins said.
DraftKings should be given some credit for its transparency. And at least for now and the foreseeable future, Michigan sports bettors remain unaffected. Those in the previously mentioned four states aren’t as lucky as the new fee on winnings is slated to go into affect Jan. 1.
