Illinois House Approves New Progressive Sports Betting Tax Rate

Major legal online sports betting news came out of the Land of Lincoln on Wednesday. The Illinois House voted to approve the 2025 state budget, which includes a new progressive tax rate for sports betting operators.

The new progressive tax rate will be set between 20% and 40% for each sportsbook. All eight Illinois sportsbooks will have their rate determined by the amount of revenue they generate. That means industry giants like FanDuel will now have a much higher tax rate than that of their smaller competitors.

The tax was modeled after Nebraska, which has a similar system. Illinois is currently using a 15% tax rate for all operators. That means six betting sites will have a small rate hike, while DraftKings and FanDuel will see theirs more than double.

The budget is now awaiting the signature of Illinois Governor J.B. Pritzker, who originally proposed raising the operator tax.

The Sports Betting Alliance (SBA), a group made up of the industry’s major operators, has vehemently opposed any tax hike. They have been reaching out to bettors, letting them know that a rate hike would force them to water down odds and offer fewer promos to make up for the lost revenue.

While the SBA’s warning did generate some public support, the progressive tax rate puts the group in a difficult spot. The new system is a major win for the operators not named FanDuel and DraftKings, which own over 80% of the market share in the US. The pair of industry-leading sportsbooks have led to the market shrinking as smaller operators struggle to compete. That puts a strain on the alliance, which could be a major problem.

If operators do not follow through on limiting sportsbook promos and decreasing odds, it could lead to other states following Illinois's lead. Several other states have been discussing raising tax rates as tensions between regulators and sportsbooks begin to heat up.

Wall Street took notice of the new tax rate proposal in Illinois, leading to a drop in their share prices. DraftKings saw a drop of 10%, while FanDuel was close behind at 7.7%.

The drop was due to the massive tax hike that both operators will see in Illinois. Going from 15% up to 40% will be a significant hit to their overall numbers. Their new rate will be the second highest in the country, finishing only behind New York.

While the drop isn’t crippling, it could become a major problem if other states adopt the progressive tax rate.