As DraftKings plans to impose a tax surcharge on its customers in New York, Vermont, Pennsylvania, and Illinois, Rush Street Interactive, which operates RushBet, PlaySugarHouse, and BetRivers, has promised not to do the same to its players in the same states.

In the latest development within the online sports betting industry, DraftKings has announced plans to pass on high state tax rates to its customers in New York, Illinois, Vermont, and Pennsylvania. The decision comes as these states impose gross gaming revenue rates up to 51%. Meanwhile, Rush Street Interactive has declared that it will not follow suit, emphasizing its commitment to customer satisfaction.

Rush Street Interactive's strategic decision

Rush Street Interactive, which operates prominent brands such as PlaySugarhouse, RushBet, and BetRivers (its most popular brand), issued a statement from Chief Executive Officer Richard Schwartz which addressed the ongoing issue of customer surcharges in specific states. Schwartz confirmed that RSI will not apply customer surcharges, stating, "As we put our customers first, it was an easy decision for us."

Meanwhile, DraftKings' decision was revealed during its Q2 results and subsequent conference call. Chief Executive Officer Jason Robins and Chief Financial Officer Alan Ellingson detailed the rationale behind adding a surcharge to customers in the affected states, and they cited the high GGR rates as the primary reason. The surcharge will then be included into betting slips but will only be applied to winning bets. Robins and Ellingson expressed confidence that players would appreciate the transparency surrounding the new charges.

DraftKings' downward shares

Despite their confidence, DraftKings' announcement has not been well received by the market. For instance, following the disclosure, DraftKings' share price dropped about 11%, hitting its lowest point since October of 2023. The reaction highlights investor concerns about the potential impact of the surcharges on customer retention and overall business performance.

In contrast, RSI has experienced a different trajectory. Though the company enjoyed a positive stock performance last week, today saw a 14.5% drop in its share price. But in spite of this, Schwartz remains optimistic about RSI's future, stating, "RSI remains committed to maintaining its leadership position in the industry by continuously prioritizing the needs and preferences of its players." He adds that the company believes that their focus should be on customer satisfaction, coupled with innovative rewards and loyalty programs, and this sets a benchmark for excellence in the online gaming industry.

The difference between RSI and DraftKings' decision

RSI's decision not to implement customer surcharges is a strategic move aimed at differentiating itself from competitors. The company offers retail and online sports betting in New York, Pennsylvania, and Illinois, along with some other states. Additionally, RSI is actively pursuing the Latin American market, a region where DraftKings has not yet shown interest.

The divergence in strategies between DraftKings and RSI accentuates the varying approaches operators are taking in response to high state tax rates. DraftKings' decision to pass on the costs to customers reflects a need to manage profitability amid rising operational expenses. Conversely, RSI's stance of absorbing the costs highlights its emphasis on customer loyalty and market differentiation.

As the online sports betting industry continues to improve and evolve, operators like RSI and DraftKings, along with many others, must navigate increasingly complex regulatory environments and balance financial performance with customer satisfaction. The differing responses from DraftKings and RSI to the high tax rates in certain states exemplify the strategic decisions companies must make to maintain competitiveness and ensure long-term success.