#15: The Commodification of DraftKings

It’s time to dive into some spicy iGaming drama, because DraftKings (DK) dropped a bombshell last week that has everyone talking. You’ve probably heard, but starting from Jan 1 next year, DraftKings will add a surcharge on winning bets in states where the tax rate is over 20%.

Yeah, that’s right. They’re taking a slice of player winnings. If that sounds crazy, you’re not the only one thinking it. It’s been criticised pretty widely on social media and I’ve got to say I’m not a fan either, because I believe it risks commodifying their brand.

But before we dive into what I mean by that, let’s quickly recap the arguments for and against.

Arguments For

• It may create a more sustainable market in high-tax states. Because it’s not a secret that taxes make it tough to run a profitable iGaming company in some US states.

• Customers are used to having taxes passed on to them. DraftKings’ CEO Jason Robins explained in a recent earnings call that this surcharge is no different from a hotel tax or sales tax.

• It’s a strategic move to push for lower tax rates in high-tax states, or at least prevent taxes from going even higher. DK is essentially sending a message to regulators that enough is enough.

• It’s more transparent than passing on the tax through other, more hidden costs. At least DK is being upfront about it.

Arguments Against

• Losing a few percent on every winning bet is exactly what can push a regular player from the green into the red across all their bets. Or make their losses even bigger. This surcharge will hit VIPs especially hard.

• Jason Robins talked about how Germany has similar taxes in other industries, but it’s exactly in Germany where a 5% surcharge on all bets has driven German players away from regulated German operators towards unregulated markets. Offshore bookmakers could really benefit from DK’s move.

• The idea that one surcharge from one iGaming platform is gonna send a message to regulators is a stretch at best. A lot needs to happen before a state changes the law. This is an attempt to force a regulator’s hands. Not a good idea. You work with regulators by talking to them, not by doing this.

• It makes DK really uncompetitive if their competitors don’t add a similar surcharge. And chances are they won’t before they’ve seen how this surcharge impacts DK.

It Commodifies the DraftKings Brand

Now here’s my biggest argument against DK’s move. It commodifies their brand and, potentially, the entire industry as well. For the following reasons:

It Shines a Spotlight on Price

Bettors are relatively price-insensitive. Except for the sharpest “value” players or bonus hunters, who are not your ideal customers anyway, the vast majority of players don’t shop around for the best odds. They largely stay with a brand they like, where they have a good experience, where they can have fun.

DK’s surcharge shines a really awkward spotlight on price. It draws too much attention to itself. Instead of simply incorporating the tax into their odds, which would have been totally fine, DK explicitly tells the player how much a win is costing them. 

A Loss Hurts a Lot More

The above is made worse because of the principle of loss aversion. It’s a well-established psychological fact that the pain you feel from losing something is much more powerful than the pleasure you feel from gaining something. Pleasure is dull; loss is sharp.

When a player wins $20 from a bet, they have it. It’s theirs. To then lose even a small percentage of that money to a new surcharge is potentially more painful than the pleasure they’ve gotten from winning the bet in the first place.

It Erodes Brand Loyalty

Brand loyalty is pretty much the holy grail of marketing. When customers stay with you even when there are cheaper or more convenient alternatives, you’re in a really good position.

DK has many customers loyal to their brand who choose DK not just for their odds, but for the overall experience. Now, with this surcharge, they’re essentially penalizing their most loyal customers. It’s exactly a move like this, which prioritizes short-term gains over customer relationships, that erodes brand loyalty.

A Poor Way to Stand Out

Companies invest so heavily in branding and marketing because they want to stand out. They want to give their customers a reason to choose them beyond just price or basic functionality. Brands become commodities when customers can't see any real differences between them. 

Ironically, DK’s surcharge does make them stand out. Just not in a good way. They’re now “the platform with the surcharge.” Instead of focusing on a superior UX, innovative games, or community features, they’re highlighting a negative aspect. 

Customer Relationships Become Transactional

A strong brand creates experiences, builds communities, and makes customers feel as if they’re part of something bigger. A commodity brand interacts with customers in a purely transactional way. Pay and receive the product. End of story.

By emphasizing the cost of every winning bet, DK’s surcharge pushes their brand towards that transactional model. The focus is on money changing hands instead of the excitement of the game or the thrill of the win. And that’s not how you build a lasting brand in the competitive world of iGaming.

It Should Be About the Bigger Picture

At the end of the day, building a successful iGaming brand isn't just about the odds or even the games. It's about creating an experience that people can't get enough of. It's about crafting a brand that resonates so deeply with your audience that they become die-hard fans, not just casual players.

Like what Betr is doing with Jake Paul. They're not just offering another betting platform; they're creating a movement. They're tapping into Paul’s massive following and cult of personality to build excitement around their brand. People aren't just placing bets. They're joining a community and becoming part of something bigger than themselves.

That's the kind of brand building that wins in the long run. It's about getting people excited to be part of your ecosystem. It's about creating something almost like a cult around your sportsbook, where the experience is the main draw.

DraftKings' surcharge is the opposite of this. It's a move that focuses on the transactional nature of betting instead of the thrill of the game or the joy of being part of a community. Sure, it might pad the bottom line in the short term, but at what cost to the brand's long-term health?

You should never lose sight of the bigger picture. The real jackpot of the industry is a brand that people love, trust, and want to be a part of.