Last week, the Illinois House of Representatives passed a progressive wagering tax rate that drastically reshaped the landscape for sports betting operators across the state. The legislative move will see the most prolific betting operators face a tax rate of 40%, a sharp increase from the current rate of 15%, transforming Illinois into a hotbed of debate within the gambling industry.
Under this new framework, tax rates will now range from 20% to 40%, correlated to each operator’s adjusted gaming revenue (AGR). Operators earning above $200 million will face the brunt of the tax hike at 40%, making it the second-highest tax rate in the United States, just behind New York’s 51%. The reorganization doesn’t stop there; those with an AGR below $30 million will see a 20% tax rate, 25% for AGRs between $30 million and $50 million, 30% for AGRs from $50 million to $100 million, and 35% for those earning between $100 million and $200 million.
The proposal has been incorporated into Illinois’ FY2025 budget and is awaiting the signature of Governor JB Pritzker. If Governor Pritzker decides to sign the bill, the new rates are expected to come into effect from July 1st. However, this potential legislative change has not been without controversy, with significant industry players voicing their concerns about the broader ramifications.
Brendan Bussmann of B Global, a consultancy specializing in the gaming, sports, and hospitality sectors, has raised alarms through a note distributed via Truist. Bussmann’s primary argument is centered on the possible ripple effect this tax increase could generate, suggesting that other states might adopt similar measures. “With Illinois being the second state to increase its tax rate, after Ohio raised its rate from 10% to 20% in 2023, investors are becoming increasingly concerned about contagion,” Bussmann stated.
Exploring potential scenarios in other states, Bussmann pointed to recent developments as possible indicators of a broader trend. Massachusetts, for instance, deliberated on a tax hike this year, though it was quickly dismissed. Bussmann believes that despite this initial rejection, the topic could resurface in the future. Similarly, there have been discussions around a tax hike in New Jersey. However, Bussmann opined that New Jersey, seasoned in gaming governance, is less likely to enact such changes. Pennsylvania was also mentioned as a potential candidate for a tax increase, although the focus there appears more inclined towards the proliferation of skill-based games.
Bussmann, known for his advocacy of lower tax environments, criticized Illinois’ approach of targeting the most profitable operators. He emphasized that these higher tax rates would impact operators already contributing the most to state tax revenue.
. Moreover, he expressed concerns that escalating taxes could negatively affect the overall market in Illinois. Higher costs for operators could lead to reduced promotions, scaled-back offerings, and less favorable betting odds for consumers.
The immediate financial impact of the proposed tax hike was evident, with significant operators like DraftKings and the parent company of FanDuel, Flutter Entertainment, observing a drop in their stock prices following the announcement. Both companies, which boast an AGR in excess of $200 million, would be subjected to the highest tax rate.
Bussmann also suggested that the increased tax burden might ironically benefit offshore betting operators. As these operators are not subject to local taxes, any exit by licensed operators due to the new tax rates could potentially divert more business towards them.
Looking at a broader timeline, Bussmann expressed concerns that states yet to legalize betting might establish high tax rates from the outset without a proper understanding of the industry dynamics. States like Minnesota, Georgia, and Missouri were highlighted, with varying levels of legislative activity and opposition. He pinpointed California and Texas as key states to observe, given their potential impact on the national gambling framework. In California, discussions around introducing sports betting on the ballot are ongoing, with a potential move to 2026 or 2028 due to tribal opposition. In Texas, opposition from Governor Greg Abbott implies any legislative progress may be delayed for several years, possibly well into 2027.
In addition to sports betting, Bussmann noted developments in other sectors of gaming. For instance, the DC Office of Lottery and Gaming recently transitioned from GambetDC to FanDuel, resulting in an immediate uptick in market activity and speculation about further market openings.
Arkansas made headlines earlier this year by considering legalizing iGaming, but the effort ultimately fizzled out, and Bussmann does not anticipate imminent legal changes. Similarly, Maryland failed to pass iGaming legislation in the last session, though budget constraints might keep the conversation alive.
Finally, Illinois itself remains a candidate for legalizing iGaming, though the pace of progress could be hindered by the state’s other gaming-related activities. These include expanding video gaming terminals into Chicago and the construction of Bally’s land-based casino in downtown Chicago.
As Illinois inches closer to implementing this controversial tax hike, the state becomes a focal point of a national discussion, sparking fears and anticipation alike across the country’s burgeoning gaming industry.
