DraftKings Falls as Illinois Nears Sports Betting Tax Hike

(Bloomberg) — DraftKings Inc. and FanDuel-owner Flutter Entertainment Plc fell on Tuesday after the Illinois Senate passed legislation that would raise taxes on sports betting.

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The bills would make the sports gambling tax, which is currently 15%, to a new graduated format that would be as high as 40% on the adjusted gross revenue of sports gaming companies. The legislation, part of the Illinois budget package, heads to the state’s House.

DraftKings fell 10% on Tuesday, the most since August, and Flutter fell by 7.7% in US trading.

Needham analyst Bernie McTernan said that a potential higher tax rate in the state has been a focus for investors since it was first proposed months ago.

Read more: Illinois Set to Shift Taxes on Businesses, Sportsbook Revenue

“Thinking through long-term implications, we expect fears of higher tax rates broadly to be more of a concern for investors,” the analyst wrote in a note to clients. “We expect the debate to shift to how much of the higher taxes can be offset by lower investments in the customer.”

Meanwhile, Rush Street Interactive Inc. gained 1.4% and shares of Penn Entertainment Inc. dropped 5.8%. McTernan said they would pay a lower tax rate than DraftKings based on their current market share.

(Updates to add latest trading.)

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