Despite pushback from major operators, Illinois is moving forward with a significant change to its sports wagering tax structure.
Under the new state budget the Illinois General Assembly approved, a graduated system with rates ranging from 20% to 40% will replace the flat 15% tax on sports betting revenue.
Key takeaways
- Illinois replaced its flat 15% tax on sports betting with a graduated tax structure.
- FanDuel and DraftKings face up to 40% taxes under the new tiered system.
- Industry leaders warn of reduced investment, but experts doubt they'll exit the Illinois market.
According to an article the Chicago Sun-Times published, Gov. J.B. Pritzker and Democratic lawmakers pushed the tax change as a fairness measure. Gov. Pritzker's office compared the move to higher tax rates in other large betting markets.
For instance, New York levies a 51% tax on online sports betting revenue, while Pennsylvania charges 36%. Ohio, New Jersey, and Nevada have lower rates of 20%, 13%, and 7%, respectively.
The new tiered system taxes sports wagering income based on how much an operator earns after paying out winnings. The breakdown includes a 20% tax on the first $30 million of adjusted gross revenue, 25% on the next $20 million (up to $50 million), 30% on profit up to $100 million, 35% up to $200 million, and 40% for revenue beyond that.
Only FanDuel and DraftKings exceeded $100 million in adjusted gross revenue in 2023, positioning them to bear the brunt of the changes.
The steep increase prompted a strong industry reaction. The Sports Betting Alliance, including FanDuel and DraftKings, voiced concern the measure could lead operators to scale back or exit Illinois' market.
FanDuel, DraftKings could lose millions
FanDuel and DraftKings raked in more than $729 million from Illinois bettors last year. Under the newly enacted graduated tax regime, FD owed approximately $145 million, while DK's tax bill would rise to around $109 million.
They've already sounded the alarm, warning the increase might make them review their level of interest in Prairie State betting.
Alliance president Jeremy Kudon criticized the hike as punitive, stating it threatens not only sportsbooks but also their partners, including smaller, regional casinos that rely on sports betting revenue to support local economies.
The final budget deal replaces Pritzker's earlier proposal for a flat 35% tax on all sports wagering income. That proposal met resistance from the betting industry and some lawmakers within the governor's Democratic supermajority, who hesitated to impose such a sharp increase on the economic sector.
The budget's final version estimates the new tax structure will generate slightly more than the $200 million that would have resulted from the initially proposed 35% flat tax.
In response to operators' warnings about leaving the state, Gov. Pritzker was either indifferent or oblivious to the threat. He stated it's time sportsbooks paid their fair share.
