Flutter and Entain face 'limited' impact as US state unveils sports betting tax

Flutter and Entain face increased costs due to a new Illinois online sports betting tax effective July 1, 2025, with Citi estimating a potential 6% and 2% impact on Flutter's US and group EBITDA, respectively, while UBS projects a $3 million impact on Entain, or 2.2% of BetMGM EBITDA. Analysts at UBS suggest the impact on Flutter could be $39 million, or 1.2% of group EBITDA, with potential mitigation strategies and a history of reducing tax-related headwinds by up to 50% in the following years. Despite the near-term earnings risk, UBS maintains 'buy' ratings on both companies, citing Flutter's market leadership and higher win margins as potential offsets.

Analysis

Flutter Entertainment PLC and Entain PLC are anticipated to face heightened operational costs due to a newly proposed online sports betting tax in Illinois, scheduled to take effect on July 1, 2025. This tax imposes a $0.25 charge on the initial 20 million bets and 50 cents on subsequent wagers. Analyst estimates from Citi suggest that Flutter’s FanDuel could have incurred $74 million in additional costs for the year ended March 2025 under this new tax regime, potentially impacting Flutter’s US EBITDA by approximately 6% and its group EBITDA by around 2% in 2025, prior to any mitigation efforts. UBS provides a slightly more conservative estimate for Flutter, projecting an EBITDA impact of $39 million, which translates to 1.2% of group EBITDA and 3.2% of US EBITDA for FY25, with a projected 1.8% group EBITDA impact in FY26 before mitigation. Importantly, FanDuel has a demonstrated history of successfully mitigating prior tax-related headwinds by up to 50% in subsequent years. Entain, holding a 50% share in BetMGM, exhibits lower exposure; UBS estimates its FY25 impact at $3 million, equivalent to 2.2% of BetMGM's EBITDA, an effect considered non-material at the group level. Despite these new fiscal challenges, UBS maintains 'buy' ratings for both companies, positing that while industry taxation presents a near-term risk to operator earnings, medium-term earnings expectations can be upheld by simultaneous top-line opportunities. The tax structure is noted as uncommon and may exert pressure on low-margin bets, though Flutter's established market leadership and higher win margins are seen as potential factors for resilience.

Key Decisions for Investors

• Investors should closely monitor Flutter's strategies to mitigate the new Illinois tax, as its historical success in reducing similar headwinds by up to 50% will be critical in limiting the projected 1.2% to 2.0% group EBITDA impact.
• Acknowledge that Entain's exposure to the Illinois tax via its BetMGM joint venture is considerably lower, with an estimated $3 million impact considered non-material to group earnings, suggesting less immediate financial sensitivity for Entain from this specific regulatory change.
• Consider the broader trend of increasing taxation as a potential risk in the US sports betting market, but also note that market leaders like Flutter may possess greater resilience due to scale and margin advantages, and that analysts such as UBS maintain 'buy' ratings, citing sustained medium-term earnings potential supported by overall industry top-line growth.