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Illinois could be penalized for its high tax on sports betting.

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Illinois’ General Assembly made an attempt to grab money earlier this week. But gambling stakeholder say that it may backfire. The lawmakers sent Governor JB Pritzker a budget for FY2025 that included a progressive rate of taxation topping at 40%.

It may seem that raising the tax on sports betting is a great way to increase revenue for any state. Illinois’ consumers are likely to suffer unintended effects, say stakeholders. One Republican member suggested during the budget debate in the House that funds be allocated to help the Democrats with their unchecked spending addiction.

Pritzker is about to sign the budget bill. This, say stakeholders, is what will determine the fate of Illinois gamblers.

Shawn Fluharty, government affairs director for Play ‘n Go and West Virginia legislator told iGB: “Players will probably see fewer promotional offers and this is bad for consumers.” It could affect the lines, which is also a negative. It could also force out some operators, which would mean less choices for consumers.

Pritzker’s proposal is bigger, but not by much

Last week, the progressive tax rate was brought up. On 26 May, the senate passed and amended the budget bill of both houses. The house approved a budget for FY2025 two days later. It includes tax increases of $700m. It must be forwarded to Pritzker in 30 days after passage.

Prtizker’s influence was so great that the Legislature even contemplated a tax hike. A few months ago, the governor began to talk about an increase. He eventually proposed a tax hike from 15% to 35%. At least for some, the increase will be even greater.

Pritzker’s budget, which was sent by the General Assembly to Pritzker, includes a tax rate that depends on gross adjusted revenue. Take a look at this:

  • Tax of 20% on AGR up to $30m
  • Revenues between $30m and $50m can be increased by 25%.
  • Revenues between $50m and $100m can be increased by 30%.
  • Revenues between $100m and $200m can be increased by 35%.
  • Revenues above $200 million will receive a 40% discount

In the proposal, retail and digital wagering AGR are separated. This means that in-person betting with a bookmaker will be taxed differently from digital wagering. By 2023, there was no brick-and mortar sportsbook that had a wagering AGR exceeding $30m. Therefore, it is likely all bets will now be subject to a 20% tax.

Once AGR exceeds 30m, it’s not clear if operators pay a blended rate or a single rate. Last year, seven of the eight digital platforms in the state had an AGR over $30m. The first $30m in an operator’s revenue will be taxed 20%. The amount from $30m to $50m will be taxed 25%. Then operators would pay a blended tax rate.

Even the smallest operator will still enjoy a 30% boost

DraftKings (350m), and FanDuel (421m), both on the digital front, exceeded the threshold of $200m for the FY 2024. Both would now be subject to a 40% tax, which is a 140% hike. The AGR of any other operator was below $100m. Tax burdens for the other six operators could increase by up to 100 percent:

  • New tax rate for BetRivers (81 million dollars) – 30%
  • New tax rate for Fanatics (51.7m $) – 30%
  • New tax rate for BetMGM (44M) – 25 %
  • Penn/ESPN bet ($42.3m), new tax rate of 25%
  • Caesars ($36.1m) new tax rate – 25%
  • Circa ($880k) new tax rate – 20%

Sports Betting Alliance, comprised of BetMGM DraftKings Fanatics and FanDuel went above what Fluharty said.

The SBA stated that “it’s a subsidy for bookies and the illegal market. Legal operators are just beginning to seriously penetrate Illinois’ robust, illegal sports betting industry.” The SBA said that “worse odds and no promotions give offshore apps who do not pay tax a huge advantage when it comes to competing for clients. It is not right to drive customers away from illegal offshore bookies or dangerous operators. This will result in less tax revenue, not more.

Tax rates that are volatile make it difficult to do business

Illinois’ decision isn’t the first. Ohio Governor Mike DeWine doubled the state wagering tax last summer. The rate for operators in the state went from 10% to a whopping 20%. New Jersey legislators are considering an increase from 13% up to 30%. Massachusetts lawmakers rejected the idea to raise taxes from 20 percent to 51 percent earlier this month.

It may be difficult for operators, due to the changing nature of the landscape, to make a commitment to a certain state.

Brian Wyman, Innovation’s CEO told iGB that operators need to plan their budgets when entering a new state. The state’s increase from 15% to 30% makes it difficult for operators to offer fair pricing to suppliers, and to afford high licensing fees. It’s bad business to have rules that are volatile, and to wait for the “other side” to change them. As other states join in, you’re bound to experience a reaction.

Illinois operators already pay high licensing fees. It costs $10m for a license tied to a pro sports arena or casino.

DraftKings and FanDuel both have capital investment.

While budget talks were taking place in Illinois, there was a report that DraftKings or FanDuel may have to reconsider the presence of their companies in Illinois. Since sports betting became legalised in Illinois, there has been a perception that the state doesn’t want these companies. It was believed that the law included three stand-alone $20 million mobile licenses for businesses without a retail presence. The owners of these licences had to wait for 18 months before they could launch their products, whereas those tied to casinos launched sooner.

At that time, FanDuel and DraftKings were not very active in brick-and mortar sportsbooks. Both partnered with existing companies and made investments to get launched sooner. In five years, a DraftKings sportsbook is located at Wrigley Field. A FanDuel sportsbook can be found at the United Center. DraftKings has also opened a sportsbook in the Casino Queen downstate, and FanDuel is located at Fairmount Park.

Wyman stated that it appears that legislators would give “preferential treatments” to businesses that invest in an state. Illinois isn’t the only place that at least appears to not do this.

Maine’s casinos lost out to its Indian tribes when the legalisation of sports betting took place.

The SBA has stated that the biggest concern is whether the tax increase will create a black market. The operators have long argued that limiting betting markets and choices leads bettors to look for better offers.

The industry views it as negative if operators reduce promotions or odds to increase taxes.

Chris Cylke, SVP of government relations at the American Gaming Association said that increasing tax rates is simply a way to preserve and promote this illegal market.

As regulations change and policies are reviewed, it’s important that they design and promote regulated market that emphasizes continued innovation and competitiveness that builds on the momentum of the industry in moving bettors from the illegal to the legal markets, and not undermine that progress.

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