Illinois Sports Betting Tax Hike Industry

Illinois Sports Betting Tax Hike Unlikely to Be Copied Elsewhere

By Amelia Walker Senior Content Writer Updated: 06 July 2024

Amelia Walker Senior Content Writer

Amelia Walker is a Senior Content Writer at Betting.US. She has a law degree and deep knowledge of the gambling laws in the United States. Her mission is to keep players informed about responsible gambling, while her passion for sports helps her create useful guides. Amelia has over a decade of experience in betting, which has positioned her as a trusted voice among our readers.

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According to an industry expert, the sports betting tax hike that has been implemented in Illinois is unlikely to be seen in other states.

Illinois has set a new precedent with its recent sports betting tax reform, which imposes a graduated tax rate on online sportsbook companies based on their revenue size. This tax structure is designed so that the largest companies will face significantly higher taxes compared to smaller operators.

The new tax regime, which will take effect from July 1, sparked a debate over whether other states would copy Illinois’ approach to boost their own revenues through similar increases in iGaming and sports wagering taxes.

However, industry analyst Jeffrey Stantial of Stifel said that this was unlikely to happen. In a recent client report, Stantial explained that although there is a potential for some states to increase their sports betting taxes, they are unlikely to adopt Illinois’ progressive tax model.

New Tax Regime a Shock for Operators

The introduction of the new tax rates has come as a shock to major sports betting operators in the state, such as FanDuel and DraftKings. These leading sports betting operations will see their tax rates jump to 37 percent and 36 percent respectively, which reflects a sharp increase from the current rate of 15 percent.

The hike has also raised concerns among investors, who are said to be wary of the broader implications that this move could have across the industry.

Stantial suggested that while companies could cope with higher taxes by cutting down on marketing and promotional expenses, the overall feeling among investors remained cautious. He estimated that a theoretical 10 percent increase in tax rates could be counterbalanced by a 70 percent reduction in promotional spending.

Other States Reluctant to Follow Suit

Despite the stance taken by regulators in Illinois, other states are said to be reluctant to follow suit by adopting the same sort of tax structure on sports betting.

After Illinois announced its tax increase, a similar proposal in Massachusetts failed to progress, and New Jersey’s recent budget proposal did not include an increase in sports betting taxes. This has helped to alleviate fears of a domino effect across the nation.

States with high sports betting taxes like Delaware, New Hampshire, New York, and Rhode Island already impose a 51 percent tax rate. This means that they are at the higher end of the spectrum when it comes to sports betting taxes, with Pennsylvania and now Illinois joining the ranks.

Stantial pointed out that these high tax rates in certain states could encourage the legalization and regulation of online casinos, potentially increasing the number of states that allow these activities. He said:

We believe OSB tax rate hikes may serve as a precursor for renewed iCasino expansion efforts, which can provide more meaningful tax revenue uplift.

While officials believe that Illinois has taken a bold step in reforming sports betting taxes, many believe that this is a one-off approach rather than one that will set a new trend.