Jim Cramer is bullish on sports betting despite new tax measure in Trump's megabill. Here's why
"Ultimately, I think this is something we need to watch, but it doesn't change my bullish attitude toward DraftKings and Flutter," he said. "The thesis here is very simple: these two companies have emerged as an effective duopoly in online sports betting."
At present, gamblers can deduct the entirety of their losses from their winnings so that they are only paying taxes on net winnings. The new tax provision changes this system so that gamblers can only deduct 90% of their losses from their winnings. For example, under the current law, if someone wins $1,000 but also loses $1,000, they do not have to pay any taxes. But under the new bill, they would only be able to deduct $900 and would have to pay taxes on $100 of winnings.
Cramer said this rule is likely problematic for professional gamblers who deal with millions in winnings and losses. It could also discourage recreational gamblers from betting, he continued, especially those who tend to win big or those who are worried they'll be taxed if they break even or lose slightly.
However, he suggested that the law may not actually have a huge effect on DraftKings and Flutter, in part because the companies aren't trying to court customers who win frequently. Most gamblers on these platforms lose money, Cramer said, and those with substantial losses won't be as impacted by the changes. He also said there's a good chance the provision will be reversed, pointing out that lawmakers in Las Vegas introduced a bill on Monday that would rollback the tax changes.
Cramer also listed off reasons he thinks DraftKings and Flutter will perform well regardless of the new tax, saying there's "built-in growth to these stories," as states gradually roll out legal sports betting. States like California, Texas and Florida are huge opportunities for the gambling giants, he said. Cramer added that the industry in general has become less competitive, so DraftKings and Flutter no longer need major incentives to draw in customers, which makes them more profitable.
"The gambling tax change is clearly not ideal, but there's a very good chance it won't have much impact on either of these companies, and it could even help them," he said.
"DraftKings applauds Congresswoman Dina Titus and Congressman Ro Khanna for introducing the FAIR BET Act," a spokesperson for DraftKings told CNBC, referring to the bill aiming to restore the old tax law. "We are committed to working with federal lawmakers and the administration to restore equitable tax treatment for our customers."
Flutter did not respond to request for comment.
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