An Increase To Illinois’ Sports Betting Tax Will Have A Negative Knock-On Effect For Bettors

Written By Rashid Mohamed on May 15, 2024 - Last Updated on May 21, 2024
Illinois Gov. JB Pritzker, whose budget proposal would increase the IL sports betting tax rate to 35%

Gov. JB Pritzker’s bid to raise Illinois’ sports betting tax rate to 35% would potentially bring in an extra $200 million in FY 2025.

It sounds like a solid business proposal for a state that’s currently cash-deficient. But what about the sports betting operators in the state? Will a 20% tax hike bode well for them too?

It’s safe to assume that the larger bookmakers, like FanDuel and DraftKings, will be able to weather the storm.

The main concern, therefore, lies with the smaller operator, for whom covering such a substantial tax increase may not be feasible.

Low Margins Already a Concern for the Industry

Ever since Illinois sports betting became legal in 2020, the sports betting tax rate has remained at 15%.

This reasonable rate has provided a friendly market for low-hold operators such as Circa Sports Illinois. The Las Vegas-based sportsbook expanded into the IL sports betting market in late September 2023.

However, last year, Illinois’ active sportsbooks generated just over $1 billion. Of that sum, $150 million in tax revenue went straight to the state. That figure would have been $350 million if Pritker’s 35% tax rate had been in effect. For a state with a projected budget of just under $1 billion, that cash infusion may turn heads.

However, as most budget increases tend to do, it would come at the taxpayer’s cost. More specifically, the sports betting taxpayer.

Sports Betting Stakeholders Oppose Tax Hike

The fact remains that sports betting continues to be a low-margin business. Compared with the more traditional forms of wagering in the gaming industry, like slots, table games, and card games, sports betting has inherently accrued lower profit margins.

This stems from the fact that operators win only slightly more than 50% of wagers.

Many major gambling corporations in Illinois oppose the tax rate increase. The Sports Betting Alliance, a national sports betting organization that counts FanDuel, DraftKings, BetMGM, and Fanatics Sportsbook as members, has launched a petition opposing the tax hike. They’re convinced the move would lead to worse odds and small promo offers for bettors.

Sports Betting Alliance Petition

FanDuel, in specific, has mobilized its massive user base to do the same.

On top of the hit this tax hike would take on the bettor, licensed, legal sports wagering operators continue to be pressed by underground operators. With Gov. Pritzker’s tax hike, legal operators would now be subject to the whims of the market.

Offshore books pay no state taxes, and legal operators worry that bettors will turn to unregulated offshore books offering better odds.

Such an advantage would further allow illegal bookmakers to stay afloat if the state decides to tax legal sports wagering at a higher rate.

In the end, bettors would be left with a range of legal options offering worse odds, or offshore sportsbooks offering better odds but a less secure overall experience.

Small Sportsbooks Are Already Casualties Of High Costs Of Doing Business

A similar surge in sports betting taxes in other states has already forced smaller operators there to close up shop. Sports betting is a tough business for bookmakers like WynnBET, Betr and Unibet, who all have pulled out of a number of states.

Currently, 30 states impose taxes on sports wagering. At 15%, Illinois’ rate is lower than only that of eight other states.

A 35% tax rate would place Illinois third nationally, right after New York (51%) and Pennsylvania (36%).

Resorting to High-Risk Parlay Options

Challenging times call for innovative measures, and to stay afloat, many books have resorted to promoting high-risk parlays.

While parlaying two or more bets on one game is nothing new, nowadays, many operators have focused heavily on popularizing these higher-risk bets, which favor the house.

It all started in 2019, when FanDuel began letting bettors create parlays on the same game, calling it the aforementioned Same Game Parlay. Soon after, every major operator offered its own version of the SGP.

On the whole, sportsbooks make big profit margins on parlays. That’s because the odds of winning a parlay involving multiple teams or outcomes are much lower than winning a single bet.

The rise of parlay betting across the country signals that operators are looking for creative ways to increase their margins. Once again, this comes at the expense of the bettor.

Illinois State Budget Decision to Come Soon

There was no mention of the 20% tax rate rise when Pritzker unveiled his 2025 state budget proposal last February.

One had to examine the budget to see a projected tax revenue increase of $200 million at the 35% rate, compared to the current 15% in FY 2024.

If the legislation passes, the higher tax would take effect July 1, the start of the new fiscal year.

Rashid Mohamed Avatar
Written by
Rashid Mohamed

Rashid Mohamed is an international journalist with a special interest in sports writing. He is a Poli-Sci graduate of Ohio University and holds an AAS in journalism. He has worked in several countries and has extensive experience in the United Nations and other regional, national, and international organizations. He currently follows Illinois' pathway to online casino legalization.

View all posts by Rashid Mohamed
Privacy Policy