Chicago Sports Betting Faces Sportsbook Shutdowns

The landscape of Chicago sports betting may never look the same.

This is to say, online sports betting in Chicago could be on the verge of implosion.

In response to a recent proposal that would raise Chicago sports betting taxes for operators, a quintet of big-time Illinois sportsbooks are threatening to close up shop if it passes. Notably, DraftKings and FanDuel are two of the five sports betting sites that say they will shudder operations in The Windy City on January 1 if the initiative on the table passes as currently constructed.

There is no overstating the significance of this potential development. We are not just talking about the consequences for Chicago sports betting. We are not even strictly talking about how this could impact the larger landscape for sports betting in all of Illinois. No, this is a possible pivot point for the entire industry. It is a crossroads of sorts. And it comes at a time when sports betting sites in the United States may technically hold more leverage than usual.

Why Operators Oppose the Chicago Sports Betting Proposal

There are many legs to the opposition surrounding the proposed changes to Chicago sports betting. Firstly, Illinois sportsbooks do not want to be on the hook for an additional 10.25 percent tax in The Windy City. This, to be clear, would be in addition to the tax rate they pay as part of their Illinois sports betting involvement.

The opposition is not just originating from sportsbooks. Officials throughout The Prairie State recently signed a letter urging against the approval of the Chicago budget proposal that calls for a special sports betting tax. They raise two primary concerns as part of their argument.

Most basically, the point out that Illinois has already raised its overall sports betting tax twice in the past couple of years. Beyond that, they also believe that allowing a unique city domain tax creates “fragmented and unstable framework that undermines the consistency and predictability” with which sports betting is currently regulated.

Sportsbooks operating in Illinois share these concerns. However, they also highlight another change in the budget that they see as an unnecessary hurdle. Here is Matthew Waters of Legal Sports Report with the full details:

“The SBA outlined a four-step agenda in a Monday meeting with members of Johnson’s office and the Commissioner of the Department of Business Affairs and Consumer Protection:

Outline the licensing categories and definitions for online sports betting operators and their service providers.
Explain the structure and administration of any “primary” and “secondary” license regime.
Detail all application requirements, timelines, fees, renewal terms and compliance obligations.
Tell operators about all enforcement expectations and mechanisms for both during the transition and after.”

So, in addition to incurring more overhead costs, sportsbooks would essentially need to reapply to keep their licenses.

Prediction Markets Loom Over the Sports Wagering Dilemma in Chicago

Rewind the clock a couple years, and it’d be easy to see the Chicago sports betting budget getting pushed through. Operators would oppose it, but they’d ultimately see it as the cost of doing business in a major market. After all, it’s not like they can tap into revenue from online sports betting in the United States without a license.

This is the leverage individual states have wielded since the Supreme Court of the United States overturned the Professional and Amateur Sports Protection Act back in 2018. By and large, it has proven to be a useful advantage. From the initial legalization process to regulating and taxing sports betting, states have held all the cards.

Well, this leverage might be fading thanks to the rise of prediction markets.

Without going too far into the weeds, sports prediction markets allow customers to purchase stakes in yes-or-no events. As one example, you could put money into the “Will the Chicago Bears win the Super Bowl?” bucket. If you take the “no” option and any other NFL team wins it all, your stake will payout its predetermined amount.

This sounds an awful lot like sports betting. Yet, prediction markets are considered a derivative industry. The interpretation of this is fuzzy—and being contested by certain states. But operators argue that because they don’t use linemakers to come up with payouts, these “event-based contracts” are analogous to the stock market. This means they are subject to federal regulations rather than state oversight. And that, in turn, allows companies to enter every market in the United States, regardless of whether they have a sports betting license.

All of this ties directly into the Chicago sports betting debate. DraftKings and FanDuel could, in theory, close up Chicago online sports betting operations and then launch a prediction-markets business.

This is a Potentially Defining Case for the Sports Betting Industry

The prediction-market scenario mapped out above sounds too easy. But we already have proof of concept. DraftKings and FanDuel have already launched prediction markets in regions where they don’t have sports betting licenses. They could view The Windy City as an extension of that play.

If the Chicago sports betting budget sends operators down this path, there may be no coming back. What’s to stop them from doing the same with other markets in which they have sports betting licenses? If they are permitted to run prediction operations, they could leverage that option into more favorable taxes and looser regulation in exchange for the state maintaining oversight.

Just so we are clear: This is very much theoretical. And for what it’s worth, Chicago officials have stated they would prefer to collaborate with Illinois sportsbooks on a solution.

Even so, this brings us back to the same question. Given the rise of prediction markets, what’s the incentive for sportsbooks to cooperate with additional regulation and operating costs? In the event the Chicago budget passes as currently constructed, we may be about to find out.

Take a look at this list of the top online sportsbooks so you can find one that works for all of your sports betting needs: