Professionals are cautioning that Illinois’s heightened sports wagering tax could spark similar actions in other regions.
Last week, the Illinois legislature approved a graduated betting tax rate. This will elevate the tax rate for the state’s most active sports wagering companies to 40%, considerably higher than the current 15%.
The new tax framework establishes rates ranging from 20% to 40% based on each operator’s adjusted gross revenue (AGR). Companies with AGR exceeding $200 million (£157 million/€184 million) will confront the highest rate of 40%, second only to New York’s 51%.
Other tax rate ranges encompass: 20% for operators with AGR under $30 million; 25% for operators with AGR between $30 million and $50 million; 30% for operators with AGR between $50 million and $100 million; and 35% for operators with AGR between $100 million and $200 million.
The proposition is part of Illinois’s fiscal year 2025 budget and is presently awaiting Governor JB Pritzker’s signature. If Pritzker decides to endorse the bill, the new tax rates will become effective on July 1st.
There are worries about the cascading effect that the increased betting tax could have.
Brandon Busman, a consultant at B Global, a company that serves the gaming, sports, and hospitality sectors, voiced further worries in a Truist report. These concerns primarily revolve around the potential cascading effect of the tax increase, with him stating that other states may follow suit and implement similar tax hikes.
“Illinois is the second state to raise its tax rate after Ohio (which increased its rate from 10% to 20% in 2023), and investors are increasingly concerned about this contagious effect,” Busman stated.
Busman also specifically mentioned other states, highlighting recent activity elsewhere that might foreshadow tax increases. Massachusetts considered raising its tax rate this year but quickly dismissed it, which Busman said is improbable to pass in the future.
Busman said there has also been talk of raising tax rates in New Jersey. However, he believes this is unlikely given the state’s experience in managing gambling regulations. Additionally, he mentioned Pennsylvania as another potential candidate, but he stated that the state’s focus is more likely to be on the popularity of skill-based games.
Illinois’s tax increase penalizes the biggest contributors
Busman, himself an advocate for lower-tax operating environments, also criticized Illinois’s move to target the most profitable operators. He pointed out that higher tax rates would hit the operators who already contribute the most taxes in the state.
He also cautioned that raising taxes could negatively impact Illinois’s overall market.
As operators confront escalating expenses, they might curtail promotional activities, diminish product selections, and present less favorable odds.
Flutter Entertainment, the parent entity of DraftKings and FanDuel, witnessed a decline in its stock valuation following the declaration of these strategies. DraftKings and Flutter will encounter the most substantial tax burdens due to their AGR exceeding $200 million.
Moreover, Bussmann even asserted that the tax augmentation will prove most advantageous to offshore gambling entities. Since these brands evade tax obligations, any licensed operator withdrawing from the market could redirect a greater volume of activity towards them.
What transpires elsewhere?
In the long term, Bussmann harbors apprehensions that states yet to legalize gambling will establish elevated tax rates from the outset without comprehending the industry’s dynamics.
States that haven’t legalized gambling encompass Minnesota, which exhausted its allotted time during its recent legislative session, and Georgia and Missouri, which will conduct a referendum on legalizing gambling in November but could encounter formidable opposition from land-based casinos.
Bussmann indicated that California and Texas remain states meriting close observation due to their substantial size and influence on the overall legal gambling panorama in the US. According to Bussmann, California is engaging in productive discussions regarding the inclusion of sports betting on the ballot in 2026. However, he appended that 2028 is a more plausible timeframe given the ongoing resistance from tribal groups.
The Texas chief executive opposes legalized wagering, implying that any action is improbable in the upcoming years, potentially even until 2027.
Bussmann notes that the Washington DC Lottery and Gaming Office chose to switch from Gambet DC to FanDuel. He states this decision immediately raised questions and now there’s discussion of opening the market to other providers.
Will we see more authorized internet gambling?
Beyond sports wagering, Bussmann acknowledges that Arkansas attempted to consider legalized internet gambling earlier this year. However, nothing materialized, and Bussmann says legalization is improbable in the near future.
Maryland also failed to pass an internet gambling bill during the last session, although the state continues to face budgetary limitations that could propel the discussion forward.
Furthermore, Illinois itself remains a possible state for legalizing internet gambling, and Bussmann anticipates the state to take action at some point. However, he recognizes that other legal activities in the state could decelerate progress.
Besides the higher sports wagering tax, Illinois also faces the challenge of expanding video gaming terminals to Chicago and Bally’s constructing a land-based casino in the downtown area.
Sign up for the iGaming newsletter.
