Illinois Sports Betting Tax on the Rise

A bill that will increase the Illinois sports betting tax has officially passed through the state legislature.

The approval will, quite obviously, have a massive impact on the Prairie State. In some cases, the tax rate for sports betting in Illinois will more than double.

However, this development isn’t just about the Land of Lincoln. This is a decision that will have ramifications for sports betting in the United States at large.

Sure, other states have increased gambling taxes before. But those hikes were not like this. Illinois’ recent measure is both unique and stark, and it’s about to reverberate throughout the entire industry.

How Much will the Illinois Sports Betting Increase?

Governor JB Pritzker (pictured above) is the driving force behind the Illinois sports betting tax increase. For some time, it wasn’t clear whether the legislature would push through his proposal or something similar. Many were worried about how sportsbooks in Illinois would react to such substantial upticks. It took three tries for the initiative that contained the increase (House Bill 4951) to successfully make it through.

In the end, though, it looks like Governor Pritzker got most, if not everything, he wanted. Pat Evans outlined what will be a tiered increase for Illinois sportsbooks over at Legal Sports Report:

In February, Pritzker unveiled his initial $51.3 billion budget, which included raising taxes on businesses and sports betting revenue. His proposal took the sports betting rate from 15% to 35%. Ultimately, the legislature passed a tiered sports betting tax rate starting at 20% and going up to 40%. The legislation taxes online and in-person sports betting revenue separately. The tiers are:

First $30 million in adjusted revenue taxed at 20%
Revenue between $30-$50 million: 25%
Revenue between $50 million and $100 million: 30%
Revenue $100 million to $200 million: 35%
Revenue above $200 million: 40%

Based on 2023 data, DraftKings and FanDuel would reach the highest two tiers. If the tax were in place last year, FanDuel would have paid 136% more in taxes, from $61.3 million to $144.4 million, while DraftKings would have paid 126% more, from $46.8 million to $105.7 million. Four other operators would reach the 30% tier.

This is clearly a massive victory for Illinois sports betting tax revenue. Wagering has been live in the state since 2019, and the market remains robust. This tax hike should lead to a serious bump in their overall financial standings.

Sportsbooks Do Not Seem Happy with the Illinois Tax Hike

The sportsbooks operating in Illinois aren’t happy with the proposed hike—which Governor Pritzkier is expected to sign into effect posthaste. As Evans noted, the Sports Betting Alliance came out on behalf of FanDuel, DraftKings, BetMGM and Fanatics earlier in the process to call for customers to voice their displeasure with the bill.

None of which is a surprise. Online sportsbooks in the United States are businesses. Tax hikes cut into their profit margins. They are of course going to oppose such a significant increase in their own expenses.

It remains to be seen how sports betting operators in Illinois will respond now that the bill has passed through the necessary legislative chambers. Frankly, it’s also unclear what they can do about it.

Something to consider, though: Will sportsbooks in the USA pass on some of the added expenses from the Illinois sports betting tax increase to their customers?

This could be done through a variety of mechanisms. Mainly, there could be less attractive sportsbook bonuses or more processing fees assigned to deposits and withdrawals. Sports betting operators could also get stingier with juicing options as well as overall cutoff rates. For instance, they might shudder a certain event or betting line after it hits a certain dollar amount’s worth of investments.

Other States Could Follow in Illinois’ Footsteps

Assuming the recently approved Illinois sports betting regulations take effect, the Prairie State would have the second-highest tax rate in the country. Currently, sports betting operators in New York are taxed at a 51 percent clip. Illinois’ top bracket of 40 percent beats out everyone else.

But for how much longer?

Jeremy Kudon, the president of the Sports Betting Alliance, expressed his concern that other states will try to mirror the Illinois sports betting tax increase. And this, he believes, will lead to a poorer and more expensive user experience for the customers.

He might not be wrong. As we already noted, sports betting operators will pass on at least some of the extra expenses to their clients. To what end remains to be seen. And states might seek to prevent them from upping fees by too much as part of any tax increases in the name of consumer protection.

To be honest, this is all much too new for us to make grand proclamations. But copycat proposals are most definitely inevitable. Places like Nevada (7 percent tax rate), New Jersey (13 percent tax rate), Ohio (20 percent tax rate) and many, many others will invariably rethink their own sports betting structures depending on how Illinois fares with its new rates.

The biggest development to monitor moving forward, though, is whether Illinois online sportsbooks leave the state in response to the additional taxes. Taking a stand in the Prairie State might send a cautionary message to others. But then again, there’s still plenty of money to be made in this market and so many others even with the extra overhead. If we had to guess, it’s more likely online sportsbooks in the US stomach any tax increases rather than exiting markets altogether.

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: