Major Sportsbook Operators Would ‘Reevaluate’ Illinois Presence If Tax Hike Becomes Law

There is an appetite among lawmakers in Illinois to force the legal sports betting industry to pay more for access to the state’s wagering market, which is now one of the biggest in the U.S.

Geoff Zochodne - Senior News Analyst at Covers.com
Geoff Zochodne ? Senior News Analyst
May 27, 2024 ? 10:55 ET ? 3 min read
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Photo By - USA TODAY Sports

The biggest names in online sports betting in the United States are warning they could rethink their presence in Illinois — such as whether they’d like to keep doing business at all — after the state’s Senate signed off on a tax hike for the industry.

A majority of lawmakers in the Land of Lincoln’s upper chamber approved an amended version of House Bill 4951 on Sunday night as part of their budget process. 

Illinois currently taxes online operators 15% of their revenue. However, H.B. 4951 now proposes a higher rate for retail and mobile sports betting in Illinois that can go even higher the more revenue an operator makes.

Starting on July 1, for example, operators would fork over 20% of their adjusted gross sports wagering receipts on annual online revenue up to and including $30 million, which then rises to 25% for income up to $50 million, 30% for up to $100 million, 35% for up to $200 million, and then 40% for more than $200 million. A similar scale would apply to retail revenue. 

Not so fast, my friend

But the Sports Betting Alliance — an industry group consisting of BetMGM, DraftKings, FanDuel, and Fanatics, which all operate in Illinois — says the bill will force them to make some tough choices if it becomes law.

“Sportsbooks across the industry will have no choice but to reevaluate their level of investment and participation in the state should this become law,” SBA president Jeremy Kudon said in a statement on Sunday night.

H.B. 4951 still requires approval from the House of Representatives, which adjourned on Saturday and is not expected to sit again until Tuesday. The measure also differs from what was proposed by Gov. J.B. Pritzker, who initially sought to hike the sports wagering tax in Illinois to 35% from 15%

“Pritzker’s office contends it’s a fairer share from corporate sportsbooks that have cashed in on Illinois bettors at a far lower tax rate than New York and Pennsylvania, where sportsbooks pay tax rates of 51% and 36%, respectively,” the Chicago Sun-Times reported last week.

There is indeed an appetite among lawmakers in Illinois to force the legal sports betting industry to pay more for access to the state’s wagering market, which is now one of the biggest in the U.S. More than $1.26 billion was bet on sports in Illinois in March alone, and almost $100 million in gross revenue was generated from event wagering. Operators also earned more than $1 billion in revenue in the state in 2023.

Other jurisdictions are pondering similar hikes, which follows a doubling of the tax rate in Ohio last year.

The Illinois tax increase would likely hit DraftKings and FanDuel the hardest, as they are the two leading earners in Illinois, just as they are in the U.S. overall. In March, for instance, FanDuel accounted for 41.5% of the gross revenue generated and DraftKings another 33.4%, according to data from research firm Vixio. No other operator achieved double digits in revenue market share. 

Even so, the SBA is presenting a united front in its opposition to the threat of higher taxes. 

The industry is already arguing it faces a 30% to 60% effective state tax rate in Illinois because it cannot deduct the cost of free bets and other promotions. Moreover, the SBA claims the state would be increasing costs despite opposition from residents, who sent more than 55,000 emails to legislators opposing the hike. 

“Rather than heeding the outcry from tens of thousands of residents who vocally opposed more than doubling sports betting taxes, the Illinois Senate advanced a budget tonight that would make Illinois sports betting tax the second highest in the country and counterproductively penalizes sports betting operators who invested millions into the local economy and created jobs in the state,” Kudon said. “This tax hike will mean worse products, worse promotions, and inevitably, worse odds for Illinois customers – not to mention provide a massive leg up to dangerous, unregulated and illegal offshore sportsbooks who pay no taxes and adhere to none of Illinois’ sports betting regulations.”

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Geoff Zochodne, Covers Sports Betting Journalist
Senior News Analyst

Geoff has been writing about the legalization and regulation of sports betting in Canada and the United States for more than three years. His work has included coverage of launches in New York, Ohio, and Ontario, numerous court proceedings, and the decriminalization of single-game wagering by Canadian lawmakers. As an expert on the growing online gambling industry in North America, Geoff has appeared on and been cited by publications and networks such as Axios, TSN Radio, and VSiN. Prior to joining Covers, he spent 10 years as a journalist reporting on business and politics, including a stint at the Ontario legislature. More recently, Geoff¡¯s work has focused on the pending launch of a competitive iGaming market in Alberta, the evolution of major companies within the gambling industry, and efforts by U.S. state regulators to rein in offshore activity and college player prop betting.

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