Illinois' fresh sports betting taxation implications for the sector
Illinois' Controversial Budget Move Sparks Industry Stir
Illinois has been creating waves with its new state budget, featuring a contentious tax on sports betting that will impact major players like DraftKings and BetMGM.
The new tax initiative, scheduled to be signed into law by Governor J.B. Pritzker, is part of a broader strategy to restructure taxation in the rapidly growing sports betting industry in the state.
Financial instability and a substantial budget deficit have forced the state into this tough decision. Amidst potential cutbacks in federal funding, Illinois' legislature opted to introduce a new tax on online sports bets. This tax comes mere months after the state enacted a higher, progressive tax system for large sports betting companies.
The changes will go into effect starting July 1.
Diving into the New Tax Measure
The newly introduced provision proposes a tax of 25 cents on every sports wager in Illinois, up to 20 million wagers. For bets surpassing this threshold, the tax escalates to 50 cents per wager. Estimates predict the tax could bring an extra $36 million in revenue for the state.
The move has sent financial markets into a tizzy, with stocks like DraftKings dipping post the budget announcement.
The Sports Betting Alliance, an industry group containing members such as FanDuel, DraftKings, BetMGM, and Fanatics, perceived the levy as a "crippling tax." It criticized the tax as both discriminatory and financially burdensome for companies. The group has publicly promised to challenge this measure, claiming it to be constitutionally questionable.
The Aftermath for DraftKings and FanDuel
In a Sunday note to clients, Barry Jonas, an analyst from Truist Securities, calculated the potential consequences of this tax if it had been applied from March 2024 to April 2025.
During this period, FanDuel and DraftKings handled 164 million and 146 million bets, respectively. Jonas projected that the tax could lead to additional financial pressures of $77 million for FanDuel and $64 million for DraftKings. BetMGM, with 16 million bets, could face a more moderate impact of around $4 million. Other companies like Fanatics and BetRivers would also face smaller additional tax obligations.
According to analysts, major operators such as FanDuel and DraftKings may counterbalance these costs by diminishing promotional events in Illinois.
Illinois' Historical Approach to Sports Betting Taxes
Illinois has a history of fluctuating its tax approach for sports betting.
Last year, the state switched from a flat 15% tax on sports betting revenue to a progressive system based on adjusted gross revenue. This change required larger sportsbooks to pay higher taxes, a strategy that drew criticism from industry leaders for undermining the competitive position of regulated operators.
This pattern has even prompted other states, like Ohio, to consider similar moves. Jonas also speculated that other states might adopt tax rates of 50% or higher, similar to not only Illinois, but New Hampshire and New York State as well.
Consequences for Consumers
Robert Walker, director of operations at ARMS, posits that the financial burden of this new tax will ultimately be shouldered by consumers. He shared with Front Office Sports his belief that operators will pass these costs on to customers, potentially impacting consumers' overall sports betting experience by reducing promotions and potentially increasing prices.
The Sports Betting Alliance emphasizes that the new tax threatens the legitimacy of the regulated market just as it faces competition from emerging alternatives. The group vowed to keep contesting the measure, stressing its adverse and potentially unconstitutional impact.
The introduction of a new tax on sports betting in Illinois has generated significant debate and resistance from industry leaders. As the state moves forward with the changes, the full impact on companies and consumers will become more apparent in the coming months.
- The Sports Betting Alliance, which includes members like FanDuel, DraftKings, BetMGM, and Fanatics, perceives the new sports betting tax in Illinois as a "crippling tax" due to its potential Financial burden on companies.
- The new tax on sports betting in Illinois is expected to have a significant financial impact on major operators like DraftKings and FanDuel, with potential additional financial pressures of $77 million and $64 million respectively, if the tax had been applied from March 2024 to April 2025.
