To bolster the Illinois state budget, lawmakers look at sports betting

Illinois lawmakers are hoping to raise more than $36 million in yearly revenue by assessing a per-wager tax on sports bets placed within the state. The state will impose a tax of $0.25 per wager for the first 20 million wagers placed with each licensed sports book within Illinois starting next month. Once there are more than 20 million bets placed, the per-bet tax will increase to a whopping 50 cents per wager, per sports book.

Back-to-back tax hikes

Just last year Illinois raised taxes on sportsbooks from a 15% flat fee to up to 40%. The progressive wagering tax approved by Illinois Senate in 2024 increased a flat 15% rate to a system based on adjusted gross revenue. The tax rate ranges from 20% for sports books earning up to $30 million in revenue and up to 40% for those exceeding $200 million. causing larger sportsbooks pay higher taxes. With this new tax Illinois will become one of the leaders in gambling taxation in the U.S.

Larger Sportsbooks Will Pay More Tax

The Illinois' sports betting market is one of the largest in the U.S., with over $14 billion in wagers placed in 2024 and as with other states, the market is dominated by DraftKings and FanDuel. The two sports betting giants are the only books that are projected to exceed 20 million bets this year. But this still does not open the door for smaller operators to compete. A tax on every bet not only cuts into bottom line profits, it also affects hold percentages and is another figure that operators will certainly be adding to pricing for sports bets. One analyst called the impact to operators in Illinois like MGM and ESPNBet 'marginal', but Citi analysts have noted that DraftKings would have had about $68 million in additional taxes, had the new tax had been in effect over the last year.

Make no mistake, the new tax will be passed onto bettors in one way or another. Several of the large gaming company stocks dropped on the news of this new tax in a state that generates which generates such huge revenue, but that is simply a knee-jerk reaction. Players will pay the price, but it will most likely be in the form of reduced promotions.

Outrage

Of course industry groups like the Sports Betting Alliance (SBA), with member books FanDuel, DraftKings, BetMGM, and Fanatics,  took to social media and issued a lengthy response calling the new tax discriminatory and punitive and going so far as to say it will be a "crippling tax". They also state that this new per-bet tax will drive bettors who place wagers for a couple of dollars or less back to offshore sports books. And, though we agree with this statement somewhat, the reality is that U.S. bettors are already paying a premium with poor, inflated odds, smaller parlay and teaser payouts and smaller promotions. Players who deposit $20 and bet $1 parlays are still going to stay close to home for the security of the regulated market and the simple convenience of depositing and withdrawing using bank accounts, credit cards and cash apps.

The idea has also been floated that this will keep players from making those $1 bets and they will wager more money to offset the overall cost of the tax. This, of course, affects problem gambling and could drive away smaller customers. But it will not. Smaller bettors may increase to $1.50 wagers but likely they will not even notice this tax as it may be reflected via a miniscule reduction in payouts for multi-leg bets. Even the Dollar Store now has a $5 aisle and everything costs at least $1.10. But, customers who were outraged at the time haven't left, nor will they. 

Unfortunately, this may be an opening salvo for revenue-hungry legislatures. Lawmakers across the nation are looking for ways to increase tax revenue and sports betting has been low hanging fruit for legislators who are targeting gambling in multiple states to bolster coffers. Maryland recently increased the state tax rate on sports betting for operators to 20% from 15%, while Ohio lawmakers defeated a bill to increase taxes in the state. New taxes are short sighted and though Illinois will potentially generate $36 million with the new tax, is it really worth the potential damage to and industry for way less than .01% of a fifty-five billion dollar state budget?