In a pivotal move by Illinois legislators, the state’s sports betting landscape is poised for a significant shift. Following a vote on Saturday, lawmakers have given the green light to a comprehensive $55 billion budget that includes Governor JB Pritzker’s desk, marking a strategic development in the state’s financial blueprint. Notably, this budget incorporates an ambitious $800 million surge in tax revenues, with a groundbreaking Illinois sports betting tax standing out among the adjustments.

This innovative tax structure introduces a charge per wager for sportsbooks, setting the stage for notable changes in the operations of betting entities within the state. The Sports Betting Alliance (SBA), which represents key players in the sports betting industry including giants DraftKings and FanDuel, has expressed strong opposition to this move. In a detailed statement, the alliance criticized the tax as discriminatory and pledged to stand against it alongside their customer base. This stance underscores the significant challenges that DraftKings’ growth strategies, in particular, are expected to face under this new tax regime.

The backdrop of this development traces back to last year when Illinois transitioned its sports betting tax model from a flat 15% to a tiered structure ranging between 20% and 40%. The latest adjustment adds another layer with a 25-cent per bet tax applicable to the first 20 million wagers placed within sportsbooks—a figure that escalates to 50 cents per wager beyond this threshold.

Given that only DraftKings and FanDuel exceeded this volume last year, with over 150 million bets each from a total of 370 million placed statewide, it’s clear these industry leaders will bear the brunt of this policy change.

Beyond sports betting, lawmakers also ramped up taxes on other sectors such as tobacco products, which now endure a heightened rate of 45%, up from 36%, extending to include vape products and nicotine pouches.

Impact of the New Tax on Sports Betting

A closer analysis reveals that under last year’s conditions, Illinois sportsbooks contributed $276 million in taxes. With the implementation of this new policy, an additional $159 million would have been added to this figure according to LSR analysis—highlighting potential future impacts on revenue streams for major operators like FanDuel and DraftKings, who would have paid $74 million and $67.9 million respectively under these terms.

Despite generating $315 million in taxes through its tiered system within just nine months—with both DraftKings and FanDuel hitting the top-tier 40% rate by January—the SBA has voiced disappointment over opting for per-bet taxation over alternative measures such as legalizing online casinos—a move projected to potentially generate up to $800 million annually.

Moreover, there is concern that this taxation approach will inadvertently drive bettors towards illegal markets due to its disproportionate impact on small-scale recreational bettors faced with substantial taxes on modest bets. This perspective is echoed in widespread customer backlash exemplified by over 76,000 emails and tweets directed at representatives urging them to reconsider what many see as punitive legislation favoring unregulated operators at the expense of consumer protection and state revenue priorities.

As states nationwide explore avenues for bolstering their coffers through increased taxation on sports betting activities—as recently witnessed with Maryland’s Governor Wes Moore signing off on a budget incorporating a five percentage point uplift on sports betting taxes—the implications of such policies continue to stir debate among stakeholders across the board. While Ohio’s proposed sports betting tax hike was ultimately shelved during budget negotiations, discussions around handle taxes signify an ongoing recalibration of fiscal strategies surrounding one of America’s fastest-growing entertainment sectors. For more insights on the evolving landscape of sports betting and how regional dynamics are shifting, see how Missouri could benefit from Illinois’ new sports betting tax. Stay updated with our latest updates on these developments.