draftkings stock faces challenges as illinois raises osb taxes

On Monday, DraftKings (NASDAQ:DKNG) stock, currently trading at $35.88 with a market capitalization of $17.8 billion, is under scrutiny following the passage of Illinois’s FY26 Budget, which introduces new incremental fees for online sports book (OSB) operators. According to InvestingPro analysis, the stock appears undervalued despite showing volatile price movements throughout the year. The new budget stipulates that operators will be charged $0.25 for each wager up to 20 million wagers and $0.50 for each additional wager beyond that threshold. DraftKings and FanDuel are the only operators in Illinois collecting over 20 million wagers annually, and this new fee is expected to increase their effective tax rate from approximately 35% to over 50%.

The unexpected addition of these fees comes after Illinois raised taxes for DraftKings and FanDuel from 15% to around 35% last year. While the company’s current EBITDA stands at -$216.83 million, Bank of America analysts estimate that this new fee could result in a $70 million annualized EBITDA impact on DraftKings in 2025, with about $35 million affecting the second half of the year. InvestingPro data shows the company maintains moderate debt levels and has achieved impressive revenue growth of 22.86% over the last twelve months. For 2026, the impact is projected to be $80 million, representing about 6% of the company’s EBITDA before any mitigation strategies.

DraftKings is anticipated to explore various strategies to mitigate the impact of these fees. These strategies may include reducing promotions, passing the fee onto customers, or altering merchandising to incentivize bets with lower effective tax rates. Although DraftKings initially aimed for 50% mitigation of the higher tax rate in Illinois, analysts suggest that actual mitigation has been less substantial as the company balances growth and profitability.

The new fee structure is not a flat tax rate across the gross gaming revenue, which might prompt DraftKings and FanDuel to adjust their bet mix in Illinois to optimize for the fee. Alternatively, they could consider passing the fee onto customers more directly. However, significant changes could potentially put them at a competitive disadvantage compared to smaller operators in the market.

As DraftKings navigates these new financial challenges, the company is expected to reassess its promotional strategies and explore aggressive mitigation measures to maintain its market position in Illinois. Notably, InvestingPro analysis reveals strong analyst confidence in the company’s future, with expectations of positive net income growth this year. For deeper insights into DraftKings’ financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, DraftKings Inc. reported its first-quarter earnings, which showed robust user engagement and an improved structural sportsbook hold, despite customer-friendly outcomes during the March Madness tournament. This led to a revision of the company’s full-year revenue and AEBITDA guidance. Analysts from Benchmark raised their price target for DraftKings to $45, maintaining a "Buy" rating, while Macquarie and TD Cowen both lowered their price targets to $53, yet kept an optimistic outlook on the company’s long-term growth. UBS also maintained a "Buy" rating, with a target of $58, noting the potential for growth despite a natural deceleration in handle growth as new markets mature.

DraftKings’ product improvements and strategic focus on higher-margin bet types like parlays have resulted in a higher structural hold, even as the actual hold faced challenges from sports outcomes. The company has also seen a significant increase in Monthly Unique Payers, attributed to strong retention and acquisition strategies. Stifel analysts maintained a "Buy" rating with a $53 target, emphasizing DraftKings’ increased handle share in tier-2 sports and potential rebound in market share momentum. The company’s focus on enhancing live betting options and leveraging proprietary content engines is expected to bolster its market position.

Despite the revised guidance for 2025, DraftKings aims to achieve margin expansion and generate substantial free cash flow. Analysts remain positive about the company’s ability to scale profitably through ongoing product innovation and efficiency improvements. As DraftKings navigates the competitive online sports betting market, its strategic initiatives and growth prospects continue to draw attention from investors and analysts alike.

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