Will Illinois’ sports betting tax hike impact bettors?

Learn more about the tax increase on sports betting in the Prairie State and what its implications are going forward, both for bettors and sportsbook operators.

Beginning on Monday, the sportsbooks in Illinois will be paying more in taxes to the state. For many operators, the tax rate has more than doubled. After paying a flat 15% tax since the state legalized online betting in 2019, some operators will be hit with a 40% tax rate after Governor JB Pritzker signed a new bill into law. 

Illinois is the first state to adopt a progressive tax rate for sportsbook operators. Sportsbooks will pay taxes based on their gross revenue. Here’s the breakdown:

• 20% tax rate on gross revenue up to $30 million
• 25% tax rate on gross revenue between $30-$50 million
• 30% tax rate on gross revenue between $50-$100 million
• 35% tax rate on gross revenue between $100-$200 million
• 40% tax rate on gross revenue over $200 million

DraftKings and FanDuel have already passed $200 million in gross revenue for 2024, meaning every dollar they earn for the rest of the year will be taxed at 40%. BetRivers and Fanatics have surpassed $50 million, meaning their tax rate has doubled from the previous number. 

With the new tax rates, Illinois now has the second-highest tax rate in the nation behind only New York. There is concern about how these new regulations will impact the casual everyday bettors using Illinois sportsbooks. 

Bettors will feel a squeeze

Sportsbooks are a for-profit entity, meaning that anytime they are negatively impacted financially, they will react and try to make up for it somehow. With the new tax rate in Illinois eating into the operators’ earnings, bettors in Illinois are likely to feel the changes. 

The most obvious shift will likely come in the sportsbooks’ promotional spending. Sign-up bonuses might not be as lucrative as they used to be. There might be fewer daily promotions for new and existing users. Promotions could be capped at lower dollar amounts. It’ll be harder to get a free bet. 

The best example of this is to look at the state with the highest tax rate in the country, which is New York. Most notably, BetMGM does not offer a sign-up bonus in New York as the state’s tax rate makes it prohibitive for them to do so. Other companies have slashed their bonuses and offers in New York compared to the rest of the country. 

Some sportsbooks operate completely normally in New York. At the end of the day, it’s the decision of the sportsbook as to how they want to compensate for the increased tax rate. 

Illinois isn’t the first and won’t be the last to raise tax rates

When PASPA was first repealed in 2018, nobody really knew what would become of the sports betting industry across the country. Now, with almost six years of data to look at, it’s easy to say that this industry has taken off way faster than anyone could have imagined. Records are being set every month across the country. 

New York was aggressive by launching sports betting with a 51% tax rate on NY Sportsbooks. They received a lot of negative feedback for that decision and many said they were harming the bettor by being greedy. However, since they began accepting online bets in New York, no state has wagered more money. Every month, New York leads the United States in betting handle.

Other states have taken notice. Last year, Ohio raised its tax rate from 10% to 20%. New Jersey lawmakers are contemplating a bill that would more than double the state’s tax rate from 13% to 30%. Massachusetts flirted with the idea of raising its rate from 20% to 51%. 

While sportsbook operators are certainly annoyed by the trend, elected government officials are tasked with doing what is right for their citizens and state. The new Illinois tax rates are expected to bring in at least an additional $200 million in tax revenue for the state. That’s why the decision was made, much to the chagrin of FanDuel, DraftKings and all the other operators in the state.