DraftKings: Illinois' Sports Betting Tax Increase Hits Shares and Supports Our No-Moat Rating

Over the weekend, the Illinois Senate passed a budget bill that included an increased tax on sports betting, to as high as 40% from 15%. The state’s Democrat-led House is expected to approve the bill as early as this week. While DraftKings does not break out the percentage of revenue it derives from sports betting or iGaming, nor the exposure to any individual state, we think Illinois sports wagering is around a low-single-digit percentage of its total sales, since Illinois is just one of 25 states where the company operates sports betting. Thus, we think Illinois’ tax increase will be a 1%-2% headwind to total revenue, which we expect will be mitigated by continued cost controls and efficiencies, leading to no material impact on our $49 fair value estimate.