Illinois eyes progress 40% tax on sports betting

Illinois is looking to introduce the nation’s second-largest sports betting tax, a progressive levy that will range from 20% to 40%, based on the number of bets sportsbook operators in the state handle.

This is a dramatic increase from the original 15% tax rate which was passed in 2021, and it has already ruffled feathers among industry observers, as well as crimped NASDAQ performance for several companies, with both DraftKings and FanDuel’s stock price sliding on the news that Illinois is looking into what is a rather steep tax rate.

The tax hike was passed on Sunday, as an amendment to HB4951, and with markets closed for Memorial Day, the fallout is only starting to materialize now. Naturally, there has been a stern response from the industry, with the Sports Betting Alliance, a group of companies reuniting some of the biggest names in the sports betting industry, launching the "No Tax Hike Illinois" campaign, although in rather hushed tones.

The organization’s website now sports the banner, with its members, DraftKings, FanDuel, BetMGM, and FanaticsSportsbook not having made any official recommendation regarding the law. Yet, there are rumors that at least some companies may consider leaving the market altogether, as the tax is likely to hit companies with bigger sports betting handle, such as DraftKings and FanDuel, the most severely.

Planning for a 25% increase tax hike is next to impossible, and although companies have been able to navigate the choppy seas of overbearing taxation in New York, they are not very keen nor likely to absorb the same shock in Illinois. On the flip side, the tax is passed during the off-season for most major American sports, which gives operators some time to decide without losing too much steam.

Yet, there are several big lessons here. For one, if Illinois is successful in passing this tax, by both Gov. J.B. Pritzker and legislators clearing the last remaining hurdles, could set a template taxation model for the rest of the country to follow.

Often enjoying bipartisan support, sports betting legalization and gambling expansion have been seen as a way to boost public purse strings rather than anything else. This means that political faultlines won’t come into play when Democrats and Republicans decide on sports betting tax hikes, but rather see eye-to-eye on the issue.

Illinois may serve as a model for others, such as Colorado and Ohio, both of which have fiddled with the idea, although never really bringing it to bear fully. If passed, Illinois’ tax bet would be second only to New York’s 51% flat tax on sports betting. Pennsylvania does levy hefty taxes on iGaming, but not on sports betting.

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