Illinois lawmakers have again gone after the sports betting industry with a major tax hike, the second straight year of increased money pressure on operators in the Prairie State. Concluded in the final hours of the legislative session, it has prompted industry leaders to explore new approaches, including the use of prediction markets, to mitigate rising business costs.
New Last-Minute Lawmaker Moves Create Uncertainty for Industry
The Illinois General Assembly ended its spring session with much drama by passing a $55.2 billion state budget that contained several tax provisions that were hotly opposed. Included in those measures was an unexpected imposition specifically on sports betting operations, which caught all stakeholders unprepared for its timing and scope. The legislation came only days before the session deadline, with little opportunity for public discussion or input from the industry.
Democratic legislators, under significant budgetary pressure from numerous state commitments, added the sports betting tax, along with a hike on tobacco products and changes to the business income tax for out-of-state entities. The limited time for review drew sharp criticism from Republican legislators who said the process was meant to be opaque and lacked transparency.
Governor JB Pritzker has signaled his desire to sign the full budget package even as the gaming industry reps and many other business groups in Illinois loudly oppose it. This commitment ensures that the increase in sports betting tax will come into effect, fundamentally changing the operating environment for wagering companies within state boundaries.
Progressive Tax Structure Imposes Disproportionate Burden
Illinois has already adopted progressive taxation in 2024, with variable rates based on operator performance, and thus abandoned the uniform 15% rate that previously applied to all companies. Under that system, operators are taxed at a baseline rate of 20% on adjusted gross revenues with escalating percentages for higher-performing companies up to 40% for companies with more than $200 million in annual revenues.
The latest tax measure introduces a new per-bet charge system that will affect the leading players in the market more. Firms will have to pay $0.25 on each bet made during its fiscal year up to the first $20 million in total handle. After that limit, the per-bet fee goes up to $0.50 for every other wager placed using their systems.
This especially impacts frontrunners DraftKings and FanDuel, who together hold about 75% of Illinois’ sports betting market. Analysts estimate that if it had been applied retroactively, FanDuel would have had to pay an extra $86 million in taxes, and DraftKings would have faced about $79 million in additional expenses based on their trailing twelve-month performance.
The progressive structure in Illinois, together with new per-wager fees, makes Illinois one of the most expensive jurisdictions for major operators. The total tax burden now inches toward that of New York, where all sports betting companies are subject to a uniform 51% tax on gross gaming revenues. This is also New Hampshire’s rate and DraftKings operates as an exclusive provider there.
But the effect is significantly different across operator size and market position. While big players in the industry will have to bear a lot more, smaller operators will shoulder relatively less. It is estimated that the eight remaining companies doing Illinois operations will have additional tax obligations aggregating about $20 million; a fraction of what the market leaders will absorb.
Strategic Response Options for Market Leaders
Industry analysts have identified several potential strategies that major operators might employ to address the increased tax burden. One approach involves implementing minimum bet requirements, though this option could negatively impact customer experience and potentially drive users toward competing platforms or illegal alternatives.
Firms may also rethink the additional consumer fees, an idea that DraftKings shortly looked into after the tax hike last year but soon dropped when FanDuel would not put in place similar steps. The contest between top players makes one-sided fee hikes hard to maintain.
An even more interesting alternative is growth into prediction markets, which currently operate under distinct regulatory regimes that could usher in tax benefits. Both DraftKings and FanDuel have acknowledged exploring such opportunities during recent earnings calls. DraftKings CEO Jason Robins said they are keenly watching developments in prediction markets while Flutter Entertainment — FanDuel’s parent — has brought in experts from Betfair’s exchange business to help them evaluate potential applications.
Prediction markets are potentially transformative for operators looking to hedge their Illinois tax exposure. A prediction market is essentially a platform whereby users can trade contracts on the outcomes of future events—be it sports competitions, political developments, or just about anything else. Since the regulatory treatment of prediction markets differs from that of traditional sports betting, it may open up avenues for operators to generate revenue in ways that avoid the burdensome state-level taxation.
Companies like Kalshi have demonstrated the viability of prediction market platforms in the United States, offering models that sports betting firms could adopt. Adding a prediction market function could allow operators to retain customer engagement while shifting monetization methods beyond usual betting items.
The Illinois tax rise has drawn much criticism from trade reps and expert regulators. The Sports Betting Alliance, speaking for top ops incl DraftKings, FanDuel, BetMGM & Fanatics Sportsbook called the measure discriminatory and constitutionally questionable.
Brendan Bussmann of B Global Advisors, a leading sports betting regulatory consultant since the Supreme Court’s PASPA decision allowed state-level sports betting legalization, noted this per-wager tax is unprecedented. He saw the measure as hostile to innovation and technology in the gaming sector.
Critics contend that the augmented tax load will at last affect consumers, either by way of curtailed promotional efforts, changed odds systems, or direct fees being imposed. In addition, such higher costs may also create competitive pressure that may push customers away to illegal offshore operators who do not pay state taxes nor abide by the rules of consumer protection.
Repeatedly raising taxes in Illinois raises concerns about the state’s long-term appeal as a place for sports betting. Though in the short run, it may meet immediate budget needs; eventually, the cumulative effect of increasing costs is likely to impact decisions of operators on investment and participation in the market.
The earlier per-wager tax could also lead to similar taxes in other states where there is pressure on the finances, and thus create a more difficult environment in which to operate.
This is a situation in Illinois that is typical of the ongoing tensions that exist between the need for revenue and the sustainability of the industry: what public benefits can be generated through appropriate levels of taxation, without destroying the ability to maintain a good regulated sports betting market.
