How New Jersey’s Proposed Tax Hikes Could Reshape the Online Sports Betting Landscape for DraftKings and FanDuel

New Jersey’s proposed tax increases may reshape the online sports betting landscape significantly. The landscape of online sports betting in New Jersey is facing a potential shift that could fundamentally change the profitability of the industrys biggest names. As the state government moves toward increasing taxes on digital wagering, the two dominant leaders in the online sports betting market—DraftKings and FanDuel—stand to be most affected. If these proposed tax hikes are officially approved, these major operators could face an estimated financial burden of approximately $126 million in additional taxes.

Recently, New Jersey Governor Phil Murphy introduced a plan aimed at enhancing the state’s revenue through elevated tax rates on internet gaming and sports wagering. Currently, New Jersey’s tax on iGaming revenue is set at 15%, but the proposed changes aim to raise it to 25%. Additionally, the tax on online sports betting is projected to nearly double, climbing from 13% to an even 25%.

According to a report by Eilers & Krejcik Gaming (EKG), if these tax modifications pass into law, DraftKings could see their tax contributions rise to about $242.2 million, while FanDuel’s would surge to approximately $250.5 million. For this year alone, under current tax regulations, DraftKings and FanDuel are expected to pay $180.7 million and $186.1 million, respectively.

The Political Landscape Surrounding the Tax Increases

To further progress the governor’s tax agenda, New Jersey legislators have proposed Assembly Bill 5349 and Senate Bill 5349. However, the final outcome of these bills remains uncertain, and potential negotiations could lead to modifications in the tax rates.

Interestingly, EKG notes the nuanced history of New Jersey’s legislative decisions regarding the gaming industry, suggesting there’s a chance the state might reconsider the proposed online sports betting tax to a more moderate level, possibly aligning it closer to the national average of 20%.

Industry Reaction

Unsurprisingly, the proposed tax increases have not received a warm welcome from online gaming operators. Companies like BetMGM and FanDuel have encouraged their customers to express their concerns directly to state representatives regarding the tax hikes. Despite the discontent among operators, it’s noteworthy that the current proposal seems relatively modest in contrast to tax increases seen in other states.

As EKG observes, the likelihood of some form of tax increase remains high for several reasons: the proposal’s moderate nature, strong backing from Governor Murphy, its inclusion in the essential budget bill, and the urgent fiscal demands as the state grapples with a projected $3.8 billion budget deficit.

Looking Ahead: Other States Consider Tax Increases

New Jersey’s potential tax hike aligns with broader trends observed across the nation. Industry experts have identified New Jersey as a prime candidate for increasing internet wagering taxes. The state’s significant budget deficit only amplifies the need for alternative revenue streams.

Looking beyond New Jersey, other states, particularly within the Mid-Atlantic region, could similarly contemplate raising online sports wagering taxes. For instance, in Maryland, Governor Wes Moore’s 2025 budget introduces proposals to increase the state’s mobile sports betting tax from 15% to 30%. While Maryland does not allow iGaming, it also aims to enhance the tax on table game winnings from its land-based casinos, raising it from 20% to 25%.

Conclusion

The proposed increases to New Jersey’s online gaming and sports betting taxes carry significant implications for major operators like DraftKings and FanDuel, potentially leading to increased taxes amounting to over $126 million. As the political landscape develops, operators voice their concerns, stressing the need for consideration of more moderate tax rates. As states across the country reflect on their own tax strategies, New Jersey remains at the forefront of these discussions, setting a precedent for future legislative actions regarding online betting.