Illinois Senate Passes Major Sports-Betting Tax Hike

May 28, 2024
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Sportsbook operators in Illinois are facing a massive tax increase pending a final House vote that could happen as early as Tuesday.
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Sportsbook operators in Illinois are facing a massive tax increase that would take effect this July pending a vote as early as Tuesday (May 28).

The state’s Senate passed an omnibus budget bill on Sunday that includes a new graduated tax structure for sports-betting revenues that reaches as high as 40 percent.

The House is set to return Tuesday to vote on the package of bills that negotiators from both chambers and Governor J.B. Pritzker agreed upon in the days approaching the end of the session, which had initially been scheduled for last Friday (May 24). 

Sports wagering is currently taxed at the state level at a rate of 15 percent of adjusted gross wagering revenues, plus an additional 2 percent that is only applied to revenue from wagers in Cook County.

Under the new budget plan, which is included in House Bill 4951, companies would pay a minimum of 20 percent on annual adjusted gross revenues of up to $30m.

Revenues between $30m and $50m would be taxed at 25 percent, with 30 percent applied to annual revenues between $50m and $100m.

Finally, all revenues between $100m and $200m would be taxed at 35 percent, and all revenues over $200m would be taxed at the highest possible rate of 40 percent.

Although the plan was introduced Saturday, one minor change was made to the plan before passage Sunday that would separate land-based and online sports wagers in determining the tax liability, with each bucket using the same standard.

The graduated tax differs from Pritzker’s original proposal of a flat tax increase for all operators to 35 percent, with each model expected to generate about $200m in new tax revenue for the state.

“Most of the pushback, of course, is by the sportsbook companies that have made literally tens of millions of dollars from the state of Illinois,” Pritzker said during a press conference on Thursday. “All we’re asking is that they pay a little more of their fair share.”

The Sports Betting Alliance, which includes BetMGM, DraftKings, FanDuel and Fanatics Sportsbooks as its members, was indeed extremely active in the final days of the state’s legislative session lobbying against the proposed changes and spoke out against the resulting legislation as approved by the Senate.

“This is an extremely disappointing decision that will cause real harm,” said Jeremy Kudon, president of the association, in a statement. 

“Rather than heeding the outcry from tens of thousands of residents who vocally opposed more than doubling sports-betting taxes, the Illinois Senate advanced a budget … that would make Illinois sports-betting tax the second highest in the country and counterproductively penalizes sports-betting operators who invested millions into the local economy and created jobs in the state.”

Kudon said such a tax increase would “mean worse products, worse promotions, and inevitably, worse odds for Illinois customers — not to mention provide a massive leg up to dangerous, unregulated and illegal offshore sportsbooks who pay no taxes and adhere to none of Illinois’ sports-betting regulations”.

He added that “sportsbooks across the industry will have no choice but to re-evaluate their level of investment and participation in the state should this become law”. 

The bulk of the impact would be felt by market leaders FanDuel and DraftKings, which each would see their tax state tax liabilities more than double under the proposal.

Using revenues from the last 12 months of available data released by the Illinois Gaming Board, representing the period between April 2023 through March 2024, FanDuel would have seen its tax liability increase from $63m to $149m, and DraftKings would have seen an increase from $52m to just under $121m.

The two companies have already had a tougher time in Illinois than in most states gaining a foothold, as the state’s original 2019 law to permit sports wagering contained controversial provisions designed to handicap the two daily fantasy giants turned sportsbook operators, including branding restrictions that required mobile operators to use the online brand of the land-based property with which they were associated.

FanDuel and DraftKings were able to work around the restrictions by reaching agreements to rebrand existing land-based entities, with Fairmount Park racetrack being rebranded as FanDuel Sportsbook and Horse Racing, and the Casino Queen property renamed DraftKings at Casino Queen.

Despite those restrictions, the two companies hold a significant share of the state’s sports-betting market, with FanDuel collecting 41.5 percent of state revenues in March 2024 and DraftKings claiming 33.4 percent, according to Vixio GamblingCompliance research.

No other operator holds a double-digit share, although BetRivers, operated by Illinois-based Rush Street Interactive, boasts the highest share of land-based sports wagering revenue in the state.

If the House votes to adopt the bill, which is expected since the Senate adjourned its session Monday, and Pritzker signs the package into law, the new tax structure would take effect on July 1.

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