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Illinois is one of the biggest and most lucrative legal sports betting markets. That success has been buoyed by a huge sports-loving community that’s stuck with their local teams — the Bears, Bulls, Cubs, and White Sox — through mostly heartache, aside from the Michael Jordan era.
It’s also been buoyed by a huge, mostly affluent population. Chicago is, after all, one of America’s richest cities.
But… it’s also been lifted by aggressive tax policies. But here’s the thing: these policies keep pushing the limit of the Illinois sports betting industry. The state once again shocked the landscape with yet another tax increase. Here’s what happened and how the ramifications are already being felt not just in the state, but countrywide.
Illinois Adds New Tax To Every Sports Bet
To preface, Illinois is in a bit of a hole, a $3 billion hole to be exact. And to close that deficit, Governor JB Pritzker is passing a brand-new $55 billion budget. There’s a host of things included in that budget, but tucked in the throes of it was a new tax on sports gambling that has the power to rewrite the math on betting.
The tax will be applied to every single wager made inside the state, whether it’s at a physical sportsbook or a top-used mobile betting app. Here’s how it works: on the first 20 million wagers a sportsbook takes in a year, Illinois will now charge a 25-cent tax per bet. After that, the rate doubles to 50 cents per wager. To level-set things, there were more than 370 million bets placed last year. DraftKings and FanDuel were responsible for about 300 million of those bets— putting them in the direct crosshairs of this tax, more so than others.
Remember, this is not a siloed tax raise. It’s become the MO of Illinois. A year ago, the state moved from a flat 15 percent tax to a tiered system that’s as high as 40 percent for the top-earning sportsbooks, which again, DraftKings and FanDuel exclusively qualify for. This alone made Illinois one of the highest tax states for sports betting.
With this new tax, it’s now even higher, almost at New York’s level (they tax it at 51 percent flat). Doing some quick math, this new tax will likely be a boon to Illinois’ tax coffers. Illinois already hauled in $276 million from sportsbooks last year. With this new policy, it would’ve brought in an extra $159 million, according to industry analysis. Even if 25 or 50 cents doesn’t seem like a lot, the math proves it is over the long run.
Illinois’ budget modifications also came after other “vices” like tobacco and vape products. Still, that did nothing to ease sportsbook operators, who feel singled out by the state, as we’ll explain in the next section.
Backlash From the Sports Betting World
The Sports Betting Alliance — which represents FanDuel, DraftKings, and other major operators — didn’t hold back in their statement after the news hit. Here’s the money quote:
“For the second consecutive year, the Illinois legislature chose to balance its budget with a crippling tax on legal online sports betting operators and their million-plus Illinois customers — this time with no warning and no consideration of the devastating impact this tax would have on the legal market.”
Keyword in that sentence: crippling. That’s how they feel, especially when they believe lawmakers could’ve gone about this differently. The statement mentioned how Illinois could’ve just legalized online casinos, which by itself, would’ve created $800 million in revenue annually. Not only that, but SBA says the tax will push bettors to offshore betting sites instead.
“With this change, lawmakers are essentially urging customers – and especially these small dollar bettors – to switch to unsafe and unregulated sportsbooks who defy state consumer protections and generate zero taxes for state priorities.”
DraftKings and FanDuel Hit Back With Their Own Fees
As mentioned, DraftKings and FanDuel will feel the sting of this new tax the most, given their market share. But… they are not “going quietly into the night.” No, they’re swinging right back.
FanDuel announced they’ll start charging Illinois users a 50-cent fee on every single bet beginning September 1 — just in time for NFL season. DraftKings followed suit two days later with the same fee and same start state. Though, each mentioned they’d drop their fees if Illinois repealed the per-bet tax.
Ironically, last year, DraftKings floated a similar idea — a “gaming tax surcharge” for high-tax states. This was in direct response to Illinois’ 40-percent tax raise at the time. They never went through with it due to backlash. But this time around? The backlash is muted, and for all we know, other states could feel their wrath, not just Illinois.
If this feels like a tax war, it’s because it sort of is. One side raises them, the other raises them right back, and the cycle continues. The biggest losers aren’t sportsbooks. They certainly aren’t lawmakers. It’s the bettors who will foot most of these bills.
The industry’s worst fear? That this tax war spreads to other states, not just Illinois. In that scenario, bettors will really feel the pinch.
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