Illinois Betting Tax Increase May Inspire Similar Moves in Other States

The recent decision by Illinois lawmakers to implement a higher sports betting tax could encourage other states in the US to follow suit, according to an analyst from B Global consultancy.

Last week, the Illinois House of Representatives ed a progressive wagering tax rate, significantly increasing the tax burden on the state’s leading sports betting operators. The new structure imposes tax rates ranging from 20% to 40% based on each operator’s adjusted gaming revenue (AGR). Operators generating more than $200 million annually will face the highest rate of 40%, making it the second-highest tax rate in the US, following New York’s 51%.

The revised tax structure includes several tiers: operators with an AGR under $30 million will pay 20%, those between $30 million and $50 million will pay 25%, operators with AGRs from $50 million to $100 million will be taxed at 30%, and those with AGRs between $100 million and $200 million will pay 35%.

This proposal, part of Illinois’ FY2025 budget, awaits approval from Governor JB Pritzker. The new tax rates will take effect on July 1 if signed into law.

Possible Impact of Illinois’ Betting Tax Increase

Brendan Bussmann of B Global expressed concerns about the potential ripple effect of Illinois’ tax increase through a note from Truist. He suggested that other states might consider similar tax hikes, noting that Illinois is only the second state to raise its tax rate after Ohio increased its rate from 10% to 20% in 2023.

Bussmann highlighted that other states have already contemplated such measures. For example, Massachusetts considered a tax hike this year, though it was quickly dismissed. He believes it is unlikely to be revisited. New Jersey has also been mentioned, but Bussmann doubts a tax increase will occur there due to the state’s experienced approach to gaming regulation. Pennsylvania is another possible candidate, though current discussions are more focused on regulating skill-based games.

Higher Taxes Could Penalize Major Contributors in Illinois

Bussmann, an advocate for lower tax operating environments, criticized Illinois for targeting its most successful operators. He pointed out that the higher tax rates would disproportionately affect those who contribute the most tax revenue. Additionally, he warned that increased taxes could harm the overall market by prompting operators to withdraw promotions, reduce offerings, and offer less favorable odds.

The announcement of the tax hike led to a drop in stock prices for major operators such as DraftKings and FanDuel’s parent company, Flutter Entertainment. Both companies, with AGRs exceeding $200 million, will be subject to the highest tax rate.

Bussmann also argued that the tax increase could benefit offshore betting operators. As these entities are not subject to state taxes, any withdrawal of licensed operators from the market could drive more traffic to offshore sites.

What Else is Happening in the US Betting Landscape?

Looking ahead, Bussmann expressed concern that states yet to legalize sports betting might introduce higher tax rates without fully understanding the industry’s dynamics. States like Minnesota, Georgia, and Missouri are still in the process of legalizing wagering, with various legislative challenges ahead.

California and Texas are also pivotal states to watch. California is making progress in discussions about a sports betting ballot in 2026, though Bussmann predicts a 2028 timeline due to tribal opposition. In Texas, Governor Greg Abbott’s opposition to legal gambling means any changes are unlikely until at least 2027.

In other developments, the DC Office of Lottery and Gaming recently switched from Gambet DC to FanDuel, which has seen increased market traction and discussions about opening the market to more operators.

Potential for Legal iGaming Expansion

Beyond sports betting, Bussmann noted efforts to legalize iGaming in Arkansas earlier this year, though these did not come to fruition. Maryland also failed to iGaming legislation in the last session, though ongoing budget issues may revive the conversation.

Illinois itself is a potential candidate for legalizing iGaming. However, current legal activities could delay progress, including the expanded use of video gaming terminals in Chicago and the construction of Bally’s land-based casino in downtown Chicago.

Source:

“Analyst warns Illinois betting tax hike could trigger similar moves in other states”. iGaming Business. June 5, 2024.