An analyst at B Global warned that the decision of Illinois lawmakers to increase sports betting taxes could lead other US states to adopt similar measures.
The Illinois House of Representatives passed last week a progressive tax on wagering. The state’s biggest sports bettors will now pay tax of 40%. This is a significant increase from the existing rate of 15%.
Rates will range from 20% to 40% depending on the adjusted gaming revenues (AGR) of each operator. The highest tax rate is 40% for operators who have posted more than $200m in gaming revenue (PS157m/EUR184m). This rate is the second highest one among US states, behind New York’s 51%.
Tax rates for other operators are 20% for those with AGRs under $30m; 25% between $50m and $100m; 30% from $100m up to $50m; and 35% over $100m.
JB Pritzker is currently awaiting the governor of Illinois to sign off on this proposal. If Pritzker passes the bill, new rates would be effective on 1 July.
The impact of a betting tax hike
Brendan Bussmann, of B Global, an industry consultancy that serves the sports, gaming and hospitality sectors, raised further concerns in a recent note by Truist. They are mainly concerned with the potential knock-on effects of the increased fees. Other states may follow suit and increase their rates as well.
Bussmann stated that investors are more concerned about contagion now that Illinois is the second state in line to raise its tax rates [after Ohio, which raised theirs from 10% to 20 % by 2023].
Bussmann cites recent events in other states that may indicate a shift to higher taxes. Massachusetts was considering a tax hike for this year. However, it was rejected. Bussmann says that this will not be happening in the future.
Bussmann confirmed that there was also talk of a New Jersey hike. He believes that this is not likely given the experience of New Jersey in governing its gaming policies. He also mentioned Pennsylvania, but said that the focus here would be more on skill-based gaming.
Illinois’s largest tax contributors are punished by higher taxes
Bussmann, who is a supporter of low-tax operating environments, criticized Illinois as well for pursuing the most profitable operators. He pointed out that the tax rate increases will affect the companies who already generate the highest tax revenue for the state.
He warned, too, that raising taxes would have an adverse impact on Illinois’s overall gambling market. Operators may withdraw promotional offers, reduce their offerings, and even offer lower odds if they are faced with higher costs.
Stock prices of FanDuel Group and DraftKings both fell when these plans were announced. DraftKings, Flutter and FanDuel Group would both be subject to the highest tax rate due to their AGR exceeding $200m.
Bussmann even went so far to state that offshore gambling operators would benefit the most from this rise. These brands don’t pay taxes, so any possible exit from the market of licensed operators would drive more traffic to them.
What’s happening in other countries?
Bussmann is concerned that states who have not yet legalised betting may impose higher taxes at the conception of their legislation, without fully understanding industry dynamics.
Minnesota is one of the few states that have not legalised gambling. The state ran out time during the last legislative session. Georgia and Missouri are also on the list.
Bussmann stated that California and Texas are key states for the future, given the size of their populations and potential influence on legal gambling in the US. Bussmann said that California has productive discussions about sports betting on the ballot for 2026. He adds, however, that 2028 is the more likely date, due to ongoing tribal opposition.
In Texas, Governor Greg Abbott’s opposition to legalized gambling makes it unlikely that any action will be taken for at least several years and possibly as late as 2027.
Bussmann also notes that the DC Office of Lottery and Gaming has decided to move from Gambet DC over to FanDuel. He says that this has led to an instant increase in popularity – so much so, there are now talks of opening the market up to other operators.
Can we expect to see more legalized igaming in the future?
Bussmann also acknowledges that Arkansas made an attempt to legalize igaming in the state earlier this year. Bussmann says that this effort ultimately failed, and legalization is unlikely to happen anytime soon.
Maryland failed to pass igaming legislation during its last legislative session as well, despite the fact that budgetary constraints are still a factor.
Bussmann expects Illinois to take action at some stage in the future. He does acknowledge that other activities in Illinois could slow down progress.
Illinois is also facing the expansion of video gambling terminals in Chicago, and Bally’s construction of a casino on land.
