Illinois legislators have called the bluff of online sports betting companies that are suggesting they might reduce operations — or close up shop in the state altogether — after being slapped with a higher graduated tax system in Gov. J.B. Pritzker’s latest budget.
FanDuel and DraftKings will soon see their net revenue taxed on a scale that tops out at 40% under the spending plan that passed the Illinois General Assembly last week. That’s up from the 15% flat rate levied against sportsbooks since the now billion-dollar Illinois industry launched in 2020.
The top two mobile betting giants — who raked in more than $729 million from Illinois bettors last year and have come out on top by nearly a quarter-billion so far this year — say the hike is enough to make them “reevaluate their level of investment and participation in the state.”
But Pritzker says it’s a matter of paying “their fair share” — and experts advise against betting on either of the massive gambling companies actually giving up their Illinois stakes.
“If I were the governor, I would say, ‘That’d be a shame to see you go. Don’t let the door hit you on the way out,’” said Victor Matheson, economics professor at the College of the Holy Cross in Massachusetts.
“It’s a completely non-credible threat. Of course they don’t want to pay higher rates, but there’s no evidence they can’t pay. At the end of the day, they’ve made hundreds of millions of dollars selling a wildly addictive product, and the government should tax that,” Matheson said.
An army of lobbyists for DraftKings, FanDuel and other major oddsmakers — all teamed up as the Sports Betting Alliance — made the hike a difficult proposition for lawmakers in the hectic waning days of the spring legislative session in Springfield.
The governor’s proposed 35% flat tax increase proved to be one of the biggest sticking points in drawn-out budget negotiations within the Capitol’s Democratic supermajorities.
Republican lawmakers opposed the measure, which also raised concern among some Democrats wary of penalizing an industry that made more than $1 billion and churned out $150 million in state tax revenue last year.
“That’s a tax structure that’s tough for any industry, let alone a nascent one,” said state Rep. Curtis Tarver, D-Chicago, who ended up voting in favor of the budget bill that landed on a graduated sports betting tax system similar to the one Illinois casinos pay.
The tiered system hammered out by Pritzker’s budget team taxes sportsbooks at 20% of revenue after paying out winners up to $30 million, 25% of revenue up to $50 million, 30% of revenue up to $100 million, 35% of revenue up to $200 million and 40% of anything beyond that.
That leaves FanDuel and DraftKings hardest hit, as the only sportsbooks among Illinois’ roster of 13 to collect more than $100 million last year.
FanDuel paid almost $62 million in state taxes on nearly $411 million in revenue last year, the biggest windfall in the state. DraftKings paid about $48 million in tax on $319 million in revenue, Illinois Gaming Board records show.
Under the graduated system, FanDuel would’ve paid the state about $145 million, while DraftKings would’ve been on the hook for $109 million.
The publicly traded companies’ stock prices dipped about 8% and 10%, respectively, earlier this week after lawmakers sent the tax hike to Pritzker’s desk.
Sports Betting Alliance president Jeremy Kudon said the new rates “counterproductively penalize sports betting operators who invested millions into the local economy and created jobs in the state” — and it leaves them “no choice but to” reconsider their Illinois operations.
“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,” Kudon said.
In a tight budget year, Pritzker’s office estimates the graduated system will actually net the state slightly more than the $200 million he eyed from a flat 35% tax.
“Gov. Pritzker believes corporations should pay their fair share in Illinois. Now, thanks to these adjustments, which put the state in line with similarly sized markets, they will,” a Pritkzer spokesman said in an email.
Sportsbooks pay a whopping 51% tax on their online wager winnings in New York, the biggest betting state in the U.S. Rates are about 36% in Pennsylvania, 20% in Ohio, 13% in New Jersey and 7% in Nevada.
Matheson’s research on sports betting markets has found no correlation between higher state tax rates and the amount of money people gamble.
“A lot of states, in the rush to add sports gambling, have way, way undertaxed it. And the companies are still making out just fine in New York,” he said. “It’s only reasonable to ask for more from an industry to mitigate the harm of addiction that comes with it.”