When Illinois Gov. J.B. Pritzker signed his budget last week, it meant that millions of additional dollars would pour into the Illinois Treasury beginning next month.
The Fiscal Year 2025 budget, which kicks in on July 1, adds a graduated tax increase on sports betting operators, which currently pay a 15% tax on adjusted revenue.
The two most popular sportsbooks in Illinois, FanDuel and DraftKings, will see their tax rate increase to 40%. Both hinted at exiting the state over the hike before the budget became law.
Would they actually leave the Illinois sports betting market? If so, what would that mean to the state?
Sportsbooks threaten to leave Illinois
In the months leading up to the FY 2025 budget signing, the two leading sportsbooks in Illinois hinted that they could rethink their operations in Illinois if their tax rate rose dramatically.
Under the new rates, FanDuel’s tax bill increases 126%. DraftKings’ rises by 130%. Those are big numbers that could impact the bottom line for the operators in one of the largest states with legal sports betting. The top rate of 40% is the second-highest in the US, behind only New York and its 51% rate.
In reality, the likelihood of the two shuttering their sportsbooks in Illinois is slim. They both dominate the market. They would not want to abandon their positions at the top in the sixth most populous state in the US. Most Illinois sports bettors prefer their easy-to-use mobile apps, odds boosts, and parlay options.
In addition, both have partnerships in Illinois for retail sportsbooks, DraftKings at Wrigley Field and FanDuel at the United Center (coming soon).
Unfortunately, the tax hike could result in worse odds or promotional offers for FanDuel and DraftKings users in Illinois. Hopefully, the companies that make billions of dollars a year will shrug off the hike and continue to offer competitive products here.
Other states have also begun tinkering with their tax rates on sports betting. Ohio increased taxes on operators last year, doubling the rate from 10% to 20%. Legislation has been proposed in Massachusetts to raise its rate to 51%, while New Jersey is considering a hike to 30%.
Only FanDuel and DraftKings face 40% tax rate in Illinois
The tax increase is predicted to result in between $150 and $175 million more in tax revenue for Illinois annually.
Last year, FanDuel Illinois paid $63.1 million in taxes from sports betting revenue, the highest total in Illinois. Under the new law, their tax bill would have been $149.5 million, an increase of $86.4 million. DraftKings Illinois would have paid the state $68.4 million more than it did.
Beginning next month, sportsbooks in Illinois will be taxed at 20% on the first $30 million in adjusted gross revenue (AGR). The next $20 million in AGR is taxed at 25%. Revenue from $50 million to $100 million is subject to a 30% tax. AGR from $100 million to $200 million is levied at a 35% rate. And finally, adjusted gross revenue of $200 million and up is now taxed at 40%.
Only FanDuel ($421 million) and DraftKings ($349 million) exceeded the top threshold in Illinois last fiscal year.
BetRivers, Fanatics, BetMGM, Caesars, and ESPN Bet all earned under $100 million in AGR in Fiscal Year 2024. Under the new rates, their tax bills would have increased by less than $9 million on average.
