DraftKings dropped plans to add an extra fee on customers’ winning bets in four states after competing mobile betting apps rejected the concept.
The Boston-based gambling service last week said it would add a small surcharge for customers in Illinois, New York, Pennsylvania, and Vermont because those states imposed high taxes on DraftKings’ revenue.
“We always listen to our customers and after hearing their feedback we have decided not to move forward with the gaming tax surcharge,” DraftKings said in a statement. “We are always committed to delivering the best value in the industry to our loyal customers.”
The change came after DraftKings leading rival, Flutter, which runs the FanDuel betting app, said it would not impose new fees on customers. Dublin-based Flutter said it would instead reduce marketing spending and bonus offers in higher tax states.
“We think that the moderating levels of generosity and reducing local marketing is the best customer option and we have no plans to introduce a surcharge for winners,” Flutter CEO Peter Jackson said on a call with analysts on Tuesday.
DraftKings never specified exactly how much it had planned to charge customers on winning bets in the four states starting next year. In a presentation to analysts, the company showed an example fee of 3.2 percent of a customer’s net winnings on a bet in Illinois.
The surcharge effort followed a move by Illinois legislators in June to raise its tax on mobile betting companies from 15 percent to as much as 40 percent of their revenue. Tax rates in the other three states already topped out at 51 percent. In Massachusetts, the state Senate in May rejected a proposal to raise the tax rate to 51 percent from 20 percent.
DraftKings will likely now follow Flutter’s lead and cut marketing spending in high-tax states, analyst Bernie McTernan at Needham & Co. wrote in a research note on Wednesday. “We expect DraftKings to use similar tactics to mitigate the impact of higher taxes,” he wrote.
Aaron Pressman can be reached at aaron.pressman@globe.com. Follow him @ampressman.