The Illinois legislature is currently debating a revised budget proposal that includes a controversial graduated wagering tax structure, which could see tax rates for gaming operators rise substantially based on their adjusted gaming revenue (AGR). The proposed tax rates would vary between 20-40%, directly impacting the financial landscape of numerous operators within the state.
Under this new proposal, operators generating an AGR of $30 million or less annually would be taxed at 20%. Those with AGRs between $30 million and $50 million would face a 25% tax. For revenues falling between $50 million and $100 million, the tax rate would rise to 30%. Operators with AGRs stretching from $100 million to $200 million would be taxed at 35%. At the high end of the scale, operators earning over $200 million would be subject to the maximum 40% tax rate.
This tax scheme would heavily impact major industry players like DraftKings and FanDuel, whose previous years’ earnings would place them squarely in the 40% tax bracket. Smaller operators, such as Circa Sports, would fall into the 20% category, with most other operators being taxed at rates somewhere in between these two extremes.
The proposed tax rates have led to significant unrest within the industry. Sources close to DraftKings and FanDuel have indicated that “all options are on the table, including withdrawing from the state”. Such a drastic move could have far-reaching implications for the Illinois gaming market.
If this proposal goes through, Illinois would become the second most expensive state for gaming operations in the competitive market, trailing only New York, which enforces a 51% tax rate. The New York model has been challenging for operators to profit under, raising concerns about profitability and sustainability.
The proposed top tier tax rate is notably higher than the initial 35% rate that Governor JB Pritkzer had originally suggested. Major operators have been actively lobbying against this hike, arguing that such a steep tax could stifle investment and job creation within the state. “The notion that you would punish the operators who invest the most and create the most jobs in the state is totally backward,” commented an unnamed industry source to iGB. “Policymakers should be incentivizing operators to create jobs and invest resources in building the Illinois market. This does just the opposite.”
Pritzker’s initial proposal sought to implement a flat tax rate that would more than double the current 15% tax rate.
. As of Saturday, sources revealed that the flat tax might still be on the table. While an increase in wagering tax seems imminent, the exact figures remain uncertain.
Should Governor Pritzker manage to successfully implement this tax increase, he would join Ohio Governor Mike DeWine as one of the few governors to significantly hike wagering taxes in a legal sports betting state. Last July, Ohio legislators doubled their wagering tax from 10% to 20% under DeWine’s urging.
Over the past year, legislators in multiple states have considered hiking wagering taxes. Ohio remains the only state that has enacted such changes. Just last week, Massachusetts lawmakers rejected a proposal to elevate the tax rate from 20% to 51%. Additionally, a bill currently in committee in New Jersey aims to increase the tax on digital wagering from 13% to 30% and on online gambling from 15% to 30%.
Illinois, home to eight active digital platforms, generated $1.03 billion in adjusted gross revenue in 2023, with the state collecting $151.4 million in taxes from these earnings.
Lawmakers had initially planned to adjourn the legislative session on May 24 but extended it to expedite the budget approval process. Technically, the legislature has until June 30 to finalize a budget, although it traditionally wraps up much earlier. If the budget is not approved by May 31, the number of votes required for passage will increase, potentially complicating the process.
Hannah Meisel, a Capitol News Illinois reporter, tweeted a statement from House Speaker Emanuel Welch late Saturday, indicating that negotiations were nearing completion. “The House and Senate are very close to an agreement on a final budget. Procedurally, the earliest an agreement could pass both chambers is next week. To let members and staff rest and spend time with family, we are adjourning for the holiday weekend and will return to complete this work.”
While lawmakers took pivotal steps on other significant issues late Friday and Saturday—addressing abortion, maternal rights, carbon storage, and health insurance reform—the debate over the proposed wagering tax structure remains a critical and contentious issue that could reshape the future of gaming in Illinois.
