Illinois tax increase surprises analysts
Wall Street analysts were taken aback by an 11th-hour Illinois budget measure that added handle taxes to those levied on sports book revenue. Gov. J.B. Pritzker has indicated that he will sign the tax hike which will take effect on July 1.
The budget calls for a 25% tax on monies wagered up to $20 million, and then it leapfrogs to 50% on anything higher. Illinois’ new levy follows upon a 2024 escalation in the progressive tax paid on sports betting revenues.
The 50% level’s effect, explained Truist Securities analyst Barry Jonas, would fall upon FanDuel and DraftKings, having taken 164 million and 146 million bets respectively between March 2024 and April 2025. BetMGM would be the third-most affected, after booking 16 million wagers in that timeframe.
Based on those numbers, Jonas extrapolated, FanDuel would have paid additional taxes of US$77 million and DraftKings US$64 million. Assuming that the tax goes into effect in July, Jonas further estimated the 2025 effect at US$40 million to US$45 million for FanDuel and US$35 million to US$40 million for DraftKings.
The extra tax bills for BetMGM and its fellows would be “more modest,” Jonas wrote. He pegged BetMGM’s additional levy at US$4 million, compared to US$3.5 million for Fanatics and US$3.2 million for BetRivers, a subsidiary of Rush Street Interactive.
Deutsche Bank analyst Carlo Santarelli minced fewer words than Jonas, deeming the new tax levels “punitive.” He noted that, since revenue and handle would both be taxed, the effective overall rate in Illinois was north of 60 percent.
Santarelli further observed that the State of Illinois had sought US$200 million more from sportsbooks via the 2024 tax hike. Although that goal appeared to be met, “the state has decided to dig in deeper.” He recalled that DraftKings and FanDuel booked 82% of wagers in the Land of Lincoln, and would pay 90% of the new levy.
Jonas estimated that operators could mitigate half the effect of the tax hike. One possible way would be by making odds more favorable to the books, another by cutting back on promotions, the most commonly used method.
Santarelli was skeptical. “As we have noted before,” he wrote, “Illinois, like others, isn’t a new market, with mobile wagering launching in 2020.” For promotion mitigation to be an effectual strategy, he continued, one would have to believe that DraftKIngs and FanDuel had run inefficient operations for the past five years. The choices for limiting one’s cash-flow compression, he felt, were quite limited.
Jonas suggested a few additional options. One choice would be to impose a 25 or 50 cent surcharge per bet, which he thought would meet with minimal customer resistance. another would be to increase the minimum amount per bet. Still another would be to leave the state-regulated framework entirely and enter the as-yet-untaxed prediction markets.
The Truist analyst also mused upon possible untoward effects, writing, “we wonder if the change emboldens illegal market operators, as players may move away from regulated gaming with less attractive/higher tax offerings.” He also thought other states might follow Illinois, New Hampshire and New York State into 50%-or-higher tax brackets.
Earlier, “we noted expected volatility in legislative sessions around higher OSB tax rates; and up until now had been focused on [Louisiana, New Jersey and North Carolina’s] tax increase discussions—with expectations of more limited impacts to operators.” Now, Jonas added, Wall Street would have to see if offshore operators seize the opportunity to wrest market share from DraftKings and FanDuel.
“In our view,” Santarelli offered, “the most striking impact of the new tax is the impact it will/should have on low-dollar-denominated wagers, which tend to be those of high hold, such as multi-leg longshot parlays.” In view of this, parlay-heavy FanDuel was likely to be less affected than DraftKings.
Jonas observed that the Illinois “budget increases state spending on what we expect to be a lower revenue base, with [the state] likely having limited opportunities to extract further tax dollars from OSB.” Ergo, legalization of i-gaming would be the logical next step “given the sizable tax contributions it can offer.”
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David McKee is an award-winning journalist who has three decades of experience covering the gaming industry.
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