Gov. J.B. Pritzker’s insistence on raising the sports betting tax rate has been one of the points of debate in a process that has extended beyond Friday’s end-of-session legislative deadline. Since then, the Senate and House have passed a version of the budget—including a variation on Pritzker’s proposed tax hike—that has some sports betting operators threatening to leave the state.
According to the Chicago Tribune‘s account, the $53.1 billion state spending plan is partly supported by “raising the state sports betting tax in a tiered structure, with the largest sportsbooks paying a 40% tax and the smallest paying 20%.”
To put it more precisely, DraftKings and FanDuel, according to Deutsche Bank analysts, would pay an additional $146 million in taxes. By comparison, the rest of the state operators would pay around $25 million combined. The graduated tax rate would not change the total amount of tax revenue from Illinois sports betting proposed in Pritzker’s initial proposal.
Breaking down the IL graduated sports betting tax rate
Pritzker’s original sports betting tax rate hike called for an across-the-board increase from 15% to 35%. A graduated tax rate increase emerged from the General Assembly’s discussion instead. It struck hardest at those operators at the top of the market and lowered incrementally depending on the earnings of specific market operators.
The following tax breakdown would apply to an operator’s adjusted gross revenue:
- 20%: Base tax rate
- 25%: Over $30 million in AGR
- 30%: Over $50 million in AGR
- 35%: Over $100 million in AGR
- 40%: Over $200 million in AGR
Though that’s different from a more than doubling of the tax rate across the board, the State Journal-Register observed,
“The revised plan, originally calling for the rate to jump from 15% to 35%, is still expected to collect the same $200 million in additional revenues for the state. Overall, the approximately $350 million expected from the bumped tax will go to state coffers and capital projects.”
The same publication shared a comment from Sports Betting Alliance president Jeremy Kudon, who said,
“This tax hike doesn’t just threaten the legal, regulated sports betting market — it will have devastating effects for operators’ in-state partners, including the most vulnerable downstate casinos, who rely on sports betting revenue to create jobs and invest in communities. Sportsbooks across the industry will have no choice but to reevaluate their level of investment and participation in the state should this become law.”
Tax rate increase takes toll on DraftKings and FanDuel stock
Since the proposal of the graduated tax rate hike, the stock prices of DraftKings (DKNG) and FanDuel parent company Flutter Entertainment (FLUT) have taken major hits in the NASDAQ. Both lost around 10% of their stock values in the first day of trading after the holiday weekend compared to Friday’s close.
DraftKings closed at $40.75 on Friday. When the market opened on Tuesday after the holiday weekend, DraftKings had tumbled to $35.56, a 13% drop. Flutter sat at $204.11 at close of business on Friday. On Wednesday morning, Flutter stock had dropped nearly 10% to $185.02.
Amid the drop in DraftKings and FanDuel stock, Illinois Capitol News reporter Hannah Meisel warned of a nuclear option on X, formerly Twitter.
Sportsbooks operators are threatening the nuclear button. A source close to DraftKings and FanDuel says that “all options are on the table, including withdrawing from the state.”
— Hannah Meisel (@hannahmeisel) May 25, 2024
What will this mean for Illinois sports bettors?
In earlier coverage of the debate from the Chicago Tribune, Pritzker cast the dynamic as big sportsbook operators making “literally tens of millions of dollars from the state of Illinois” and his plan asking them to “pay a little more of their fair share,” rather than levying the taxes “against sports bettors themselves.”
But one concern arising from the debate is that operators might push more high-risk parlay betting on their customers to offset the money lost to tax hikes, effectively shifting the tax burden onto bettors.
Another is that legal sportsbooks may employ poorer odds, pushing Illinois bettors to offshore sportsbooks.
Sports betting is one of several legal gambling avenues in Illinois. The state’s 15 licensed casinos, more than 46,000 video gaming terminals, and 13 sports wagering operators brought in more than $1.5 billion in tax revenue in 2023, according to the Illinois Gaming Board. With the change to the sports betting tax rate, sports betting revenue, which previously went to infrastructure projects, will now see this new money go straight to the state’s general fund.
