Illinois Approves Sliding Sports Betting Tax Up to 40%

Sportsbooks operating in Illinois will now be subject to tiered tax bracketing based on their revenue © Wendell Cruz-USA TODAY Sports
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-03:14
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The Illinois Senate authorized a tax hike for sports betting operators after Gov. J.B. Pritzker endorsed the idea of an increase to the state’s 15 percent rate.

The new tax will charge operators that meet a minimum requirement for adjusted gaming revenue 40 percent of their earnings, even higher than Pritzker’s proposed 35 percent. The increase was written into a Senate budget passed on Sunday and now makes Illinois home to the second-highest tax rate for operators, behind only New York (51 percent).

Operators that do not achieve $200 million in adjusted gaming revenue will be taxed at a scaled rate.

New tiers

HB 4951 passed the vote with a final tally of 37-22. The bill will return to the House of Representatives and, if approved, will go to Pritzker for final approval.

The Illinois Governor signed the state’s gaming bill that legalized sports betting and online sports betting in the state, leading to the establishment of one of the top sports betting markets in the country.

Pending House approval, Illinois will become the first state with an entirely scaled tax system. Several others have tiered tax standards but not to the same extent as the Illinois proposal.

  • Any operator that reported $30 million or less in AGR would be taxed at 20 percent.
  • Operators that make $30-50 million would face a 25 percent tax.
  • Operators reporting $50-100 million would be taxed at 30 percent.
  • Operators reporting $100-200 million would pay a 35 percent tax.
  • Operators reporting $200 million or more would be taxed at 40 percent.

One of the final updates to the bill before it was passed called for a separation of retail and online sportsbook revenue. An operator that controls both retail and online books would pay separate taxes for each in accordance with the same progressive tax standards.

Reports suggest the House is likely to agree to the Senate’s proposal, and it could be implemented by the start of July.

Pushback from operators

Illinois stands to gain a significant increase in tax funding should the new proposal go through. However, that could put a serious strain on its relationship with sportsbooks, and on their rapport with patrons.

The Sports Betting Alliance, a coalition of top betting operators, said the vote on the proposal was an “extremely disappointing decision that will cause real harm.”

Sportsbooks also previously threatened to lower betting odds for customers, making it harder for them to achieve long-term profitability, if Illinois increased its tax rate.

SBA President Jeremy Kudon also said that members of the alliance in Illinois already pay 30-60 percent in effective taxes since promotional credits are taxed as a form of revenue, whereas they are distinguished in most other states.

DraftKings and FanDuel, the two top operators in Illinois and America as a whole, both suffered declines in stock price following the reports. DraftKings’ stock price dropped 6.89 percent on its pre-market price, while FanDuel’s parent company Flutter Entertainment lost 4.73 percent on its pre-market value.

Other sportsbooks in Illinois are not expected to pay the full 40 percent like DraftKings and FanDuel but could still face increased payments on the previous 15 percent standard.

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