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As the US online sports betting world predictably and somewhat laughably responds to DraftKings’ announcement of the addition of a surcharge for certain online sports betting winnings, US online casino players would like to welcome sports bettors to their world. Part of the fallout of DraftKings’ move was a comment from Rush Street Interactive (RSI) CEO Richard Schwartz.
RSI pounced on the moment to try to sway some minds toward checking out its online gambling products. That timing conveyed more than Schwartz’s words.
The buildup to Schwartz’s comments
RSI is a DraftKings competitor in many markets, offering online casino play and/or online sports wagering in 15 states. RSI also does business outside the US but that’s mostly immaterial for this conversation.
While RSI has strong brand awareness in certain regions, it lacks the same national profile that DraftKings enjoys. Its business also produces far less revenue than DraftKings, as evidenced by recent second quarter 2024 earnings for both companies.
To provide an idea of the scale, DraftKings reported over $1.1 billion in revenue for that quarter while RSI showed more than $220 million in revenue during the same time period. For these reasons, RSI has been a target in acquisition rumors in the online gambling industry for years.
Those rumors most recently surfaced again in July, reinforcing its reputation as the annual sign that American football season is oncoming rapidly in the US. So far, these have turned out to be akin to the latest “sightings” of Nessie in Lake Loch Ness.
Given this context and the timing of Schwartz’s comments, the prospects of RSI being part of a merger or takeover might very well remain in the realm of the chupacabra.
The surcharge story and Schwartz’s comment
During DraftKings’ most recent shareholder presentation, company officials confirmed that starting on Jan. 1, online sports betting winnings for players in four states would have an additional surcharge deducted from them. DraftKings leadership explained that the move was made to offset high tax rates for their sportsbook revenue in Illinois, New York, Pennsylvania and Vermont.
During the presentation, DraftKings CEO Jason Robins defended the decision as a transparency play and compared it to a retailer breaking out a sales tax charge on a sales receipt. In the short term, reactions have not been kind regardless of the sales pitch.
Among those commenting on the situation was Schwartz, quoted in a Monday news release from RSI as saying, “as we put our customers first, it [the decision not to follow DraftKings’ example and add a similar surcharge] was an easy decision for us.”
The how and when of this release are far more important than what Schwartz said in it.
What the timing says about RSI’s future
As overblown as the reaction to this decision by DraftKings has been, the response was an obvious play by RSI. Schwartz’s comment wasn’t part of an interview by a third party who broached the subject with him.
The comment was part of a news release RSI put out on its own initiative on the first business day after DraftKings’ shareholder presentation. That isn’t an action a company looking to sell off its operations takes, much less one that is courting DraftKings as the buyer.
This release came as RSI’s global operations were as close to actually showing a profit during a quarter as they ever have. At least for the foreseeable future, it looks more like RSI is serious about carving out a niche in the online gambling industry in the Western Hemisphere rather than simply increasing its asking price in a takeover bid.
It remains to be seen whether DraftKings will actually lose any customers over the surcharge and whether RSI will gain any over the commitment to avoid that charge. Either way, the raucous clamor over the move is ridiculous.
Truth is more comical than fiction
There are plenty of ridiculous notions in this situation. The idea that DraftKings was forced into making this move by governmental forces levying exorbitant tax rates is preposterous. While Illinois has raised its tax rate for sportsbook licensees since DraftKings began operations in that state, the rates have remained unchanged in the other three states DraftKings plans to implement the surcharge.
In short, DraftKings knew what it was getting into when it signed up. There was no proverbial gun held to its figurative head.
The hysterical reactions have been just as ludicrous, however. This is nothing new for online casino players. In that realm, this surcharge is simply known as a house edge.
For example, when playing craps at regulated online casinos, there is almost always a difference between the payout for a successful wager and the true odds of that outcome on a roll. That’s the house edge, or what the casino charges you for providing the entertainment.
To Robins’ point, DraftKings could have simply increased the vig on its sportsbook products and not said anything about it. It might still do that if the negative response to the surcharge is significant.
Regardless of the fate of the DraftKings four-state sports betting surcharge, consumers are facing the reality that when you lose a privilege, it feels like something has been stolen from you.
Learning moment for US online gamblers
The fact is that US online gambling companies have been in customer acquisition and expansion mode so aggressively for the past six years that they have been operating with unsustainable business practices. The folly of consumers is they expected such conditions to last forever.
As an example, another hysterical thing about this situation is if you compare the odds for many sporting event markets on DraftKings and RSI’s products (BetRivers and PlaySugarHouse), you’ll usually find that in general, RSI’s prices are more friendly to the house.
RSI’s commitment to avoiding this surcharge is, therefore, like a company advertising a “free shipping” event when the shipping costs are worked into the sales prices of its products.
Just as companies like DraftKings and RSI are not entitled to a low tax rate, their customers are not entitled to a low house edge or vig. Online gambling companies don’t offer their products because it’s the most fun thing ever for them or because they’re just super nice and want everyone to have a good time. They do it to turn your money into their money.
The absurdity aside, RSI’s ploy is a competitive move. The big takeaway here is that RSI looks like it plans to compete instead of sell out.
