Illinois lawmakers recently deliberated on a substantial increase in wagering taxes during a 2025 budget meeting held over the weekend. Although the proposed plans have yet to be confirmed, the potential tax hike has already made waves, impacting major gaming operators such as DraftKings and Flutter.
The proposed plan aims to overhaul the current flat tax rate of 15%, replacing it with a graduated tax structure that ranges from 20% to 40%, contingent on each operator’s adjusted gaming revenue (AGR). Under this new structure, licensed operators generating AGR of $30 million per year would be taxed at a rate of 20%. However, operators earning over $200 million in AGR would be subjected to a 40% tax rate, a significant 167% increase from the current rate. This proposed rate would be the second-highest in the United States, trailing only New York’s 51%.
The scaled rates include a 25% tax for AGR between $30 million and $50 million, a 30% rate for AGR from $50 million to $100 million, and a 35% rate for AGR between $100 million and $200 million. For big-name operators such as DraftKings and FanDuel, which qualify for the top tax bracket in Illinois, this change could pose a substantial financial challenge.
Despite the lack of formal approval, the proposed increases had an immediate effect on the stock market on Tuesday. The markets had been closed on Monday in observance of Memorial Day in the U.S., but upon reopening, the impact was immediately evident for both DraftKings and Flutter, which maintain a strong presence in Illinois.
Flutter’s stock, for instance, dropped from $204.11 to $196.64 within the first half-hour of trading on Tuesday, marking a 3.7% decline. The stock continued its downward trajectory throughout the day, ultimately closing at $188.33, down 7.7% from its closing price before the long weekend.
Similarly, DraftKings experienced a notable decline. Starting from a closing price of $40.75 last week, its shares fell by 12.0%, dropping to $35.88 within the first hour of Tuesday’s trading.
. Although there was some recovery over the course of the day, DraftKings still closed at $36.61, down by 10.2% compared to Friday afternoon.
The potential financial implications of the proposed tax rise have sparked speculation among industry analysts at Truist regarding how operators might respond. Based on fiscal year 2023 figures, both FanDuel and DraftKings would fall into the 40% tax category. For example, FanDuel, which has an AGR of $480 million, would have to pay an additional $102 million in taxes. DraftKings, with an AGR of $312 million, would be facing an extra $78 million in tax payments.
Other operators in Illinois would also feel the pinch, albeit to a lesser extent. Rush Street Interactive, for instance, which posted an $82 million AGR in FY23, would face a 30% tax rate, resulting in an additional $12 million in taxes. BetMGM ($43 million AGR), Penn Entertainment ($38 million AGR), and Caesars ($33 million AGR) would all fall into the 20% tax bracket.
Industry insiders suggest that this regulatory change could pave the way for smaller operators to gain ground against giants like DraftKings and FanDuel. However, this potential shift might also raise broader concerns, especially if other states decide to follow Illinois’ lead and impose similar tax increases.
Over the past year, lawmakers in several states have contemplated increases in wagering taxes, but Ohio has been the only one to take concrete action. Last week, Massachusetts lawmakers voted down a proposal to raise their tax rate from 20% to 51%.
Truist analysts noted, “The graduated tax scheme could present an opportunity for smaller players to gain some market share at the expense of the two large players while still maintaining lower relative tax rates. However, part of DraftKings’ and FanDuel’s dominance is attributed not just to their promotional offerings, but also to their superior tech infrastructure.”
A troubling issue that may arise is that higher taxes could compel licensees to reduce offers in Illinois. This, in turn, could drive more players to illegal gambling sites that offer greater promotions but do not hold a state license and thus, aren’t subject to tax laws.
The Sports Betting Alliance, a coalition of major operators including FanDuel, DraftKings, and BetMGM, has openly criticized the proposed tax hike, warning that it could push users towards illegal operators. Truist analysts echoed this sentiment, stating, “We believe states are underestimating the prevalence of the illegal markets, which on-shore operators compete with fiercely.”
Supporting their concern, Truist referenced a recent survey indicating that 31% of online sports betting respondents had placed bets offshore, with this figure rising to 71% among VIP players. These statistics align with data from Juice Reel showing that offshore books accounted for 18% of tracked bets, contributing to 46% of online sports betting handle and 50% of revenues.
As Illinois lawmakers continue to refine the 2025 budget, both industry insiders and market analysts alike will be watching closely to see how these proposed changes will shape the future of the state’s gaming landscape.
