Jefferies Slashes DraftKings Price Target to $53 Due to Tax Hikes in Key States
Jefferies Financial Group cut its price target for DraftKings (NASDAQ: DKNG) from $60 to $53, citing mounting tax pressures in New Jersey, Louisiana, Illinois, and Maryland as the primary driver. Despite the downgrade, the firm retains its “Buy” rating.
The escalating tax burden, particularly Illinois’ punishing per-wager tax, threatens to erode profitability, with Jefferies forecasting $25 million in headwinds for both Q3 and Q4 2025 and $80 million in 2026.
Tax Hikes Squeeze DraftKings’ Margins
The most significant blow comes from Illinois, where a new per-wager tax, effective July 1, 2025, imposes a 25-cent fee on the first 20 million bets annually and 50 cents thereafter, as part of the state’s FY 2026 budget aiming to raise $36 million yearly. This follows a 2024 tax hike that shifted Illinois’ sports betting tax from a flat 15% to a progressive 20%-40% based on revenue, landing DraftKings and FanDuel in the top 40% bracket.
The combined effect has ballooned DraftKings’ Illinois tax bill from $46.8 million to $105.7 million. Jefferies estimates this new tax alone could cost DraftKings $68 million annually, with a projected $79 million hit to 2026 EBITDA, roughly 5.4% of its earnings.
To offset this, DraftKings announced a 50-cent transaction fee per online bet starting September 1, 2025, a move mirrored by FanDuel. CEO Jason Robins warned that such taxes “inadvertently boost illegal betting operations,” as they disproportionately burden low-stakes bettors, potentially driving them to unregulated platforms.
New Jersey’s tax hike, effective July 2025, unifies rates for online casinos, sports betting, and daily fantasy sports (DFS) at 19.75% of gross gaming revenue (GGR), up from 13% for mobile sports betting and 10.5% for DFS.
Louisiana’s sports betting tax rises to 21.5% from 15% starting August 2025, while Maryland’s rate climbs to 20% from 15%. These increases, combined with a $10 million Q4 2025 headwind from Missouri’s December sports betting launch, exacerbate DraftKings’ fiscal challenges.
Jefferies projects $80 million in tax-related headwinds for 2026, plus $75 million in launch fees for Missouri and Alberta and a $100 million placeholder for potential prediction market startup costs.
Financial Forecasts Adjusted Downward
Jefferies’ revised projections reflect these pressures. For 2025, the firm lowered its adjusted EBITDA forecast to $775 million, below DraftKings’ guidance of $800-$900 million and the consensus of $839 million.
For 2026, Jefferies cut its revenue estimate to $7.45 billion from $7.51 billion and adjusted EBITDA to $1.25 billion from $1.5 billion, trailing consensus estimates of $7.55 billion and $1.45 billion, respectively.
Despite these cuts, Jefferies remains bullish, noting DraftKings’ 20% year-over-year revenue growth to $1.4 billion in Q1 2025 and its $13.9 billion sportsbook handle. The firm’s Q2 2025 estimates hold steady at $1.4 billion in revenue and $212 million in adjusted EBITDA, aligning with consensus figures of $1.39 billion and $225 million.
However, the tax hikes compound other challenges. DraftKings’ Q1 2025 earnings reported a $33.8 million net loss, improved from $142.5 million in Q1 2024, but customer-friendly March Madness outcomes and Maryland’s tax increase, alongside the shutdown of Jackpocket operations in Texas and New Mexico, cost $30 million in revenue and $26 million in EBITDA. These factors prompted DraftKings to lower its 2025 revenue guidance to $6.2-$6.4 billion.
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