00:00 Speaker a
Sports book operators who are under pressure because Illinois deliver tax increases in betting. Legislators maintain a budget, which includes a 25 -cent fee for betting on the first 20 million online sports. The tax rate then increases to 50 cents for betting. To learn more about what this means for sports betting, let’s contact the Citizen Senior Equity Research analyst, which would be Jordan Bender. Jordan, it’s always great to see you on the show. Thus, these names have been subjected to some pressure today, Jordan. I am watching DraftKings decreased by about 6%, the flutter ended by almost 3%. If I am an investor, Jordan, I have capital for these two names. Should I be worried? What will this mean to their essence?
01:46 Jordan Bender
Hey Joshai, it’s nice to see you as always. You know, we went out at work on Friday and didn’t expect someone to come over the weekend. And in less than 24 hours, DraftKings and Flutter, they got into a fairly high tax increase from Illinois. You know, today the reaction of investors and you can see it in the shares, as well as in the shares here, whether it was just in blue. It was not expected. And it’s a little scary part is that we have seen that tax increase is part of this industry. Everything is expected to be done for a fixed fee. The flat fee just occurs. This was done more than the completed tax basis. And this is the second year in a row that has caused investors. Hm, you know, the terrible problem is in the face that some tax increases start shorter and shorter. Illinois, it happened in less than 24 hours. It wasn’t someone in a radar. Hm, these companies will have to work as they adjust business models. But, you know, we both names are the top form of the market. We are in the industry. We believe that there are ways to actually compensate for some of the effects of these taxes, which we think will be about 80 million a year and will be about 85 million a year a year.
04:23 Speaker a
Those ways to compensate for this, Jordan, those levers that you think could grab, bypass us through it.
04:48 Jordan Bender
So historically what we have seen, you remove costs from the cost structure. You, sales and marketing, decrease. Some technology costs may be reduced. I think this time, given that it is an Illinois, this is the second year in a row. The effective tax rate is now more than 50%. And these companies are approaching where, you know, Illinois P&L or even New York’s P&L, they no longer make so much money, just considering what taxes are. So there are ways to compensate for the surface. Hm, you make people bet more, you make people bet more parles or longer legs. And the last interesting thing here I have discussed a lot today with investors is, you know, we see it as a driving management programs with Uber and LYFT, where they will actually show you the real extra charge or impact on your receipt for each ride. Hm, you know, investors have said this idea that today, you know, earning 25 cents for each betting by earning the state of Illinois. And then, in fact, there is also a step of 50 cents. But only by showing the end user, this is exactly what the state did. Hm, you know today and yesterday, sending messages from DraftKings and some of these sports betting operators are that they want to just pass it on this time to the user and not necessarily take the hit themselves. So it changed the ton slightly this time compared to the historic tax rate. But you know, we’ve talked about a big impact on DraftKings and Flutter. We don’t think you will come somewhere next to it, and I think the user will take many huge ones here.