Analyst on Illinois Tax Gambit Says It Unlikely to Spur Copycat Moves in Sports Betting Market

• States unlikely to replicate Illinois plan
• Illinois requires a fee of 25 cents per wager on the first 20 million bets and 50 cents thereafter
• Impact on sports betting stocks

The recently announced tax increase in Illinois, part of the budget for fiscal 2026, has sparked a conversation among industry analysts regarding its potential impacts on the broader sports betting landscape. At least one expert believes that it is unlikely other states will adopt a similar initiative that imposes a per bet tax on sports betting.

Under the new framework introduced in the Land of Lincoln, sports betting operators will incur a 25-cent fee for every wager placed on the first 20 million bets, which will double to 50 cents for any additional bets thereafter. This is expected to hit large operators such as FanDuel and DraftKings particularly hard, as evidenced by the recent decline in their stock prices following this news.

Jefferies analyst David Katz noted, “While the immediate financial ramifications are noteworthy, what poses a greater risk is the concern that other states might emulate Illinois’ tax strategy. However, we believe such a scenario is improbable, given the unique tax history of different jurisdictions.”

About a year ago, Illinois had already enacted a tiered tax system where major operators faced steeper tax rates than smaller competitors, which led to fears of similar actions being adopted by other states. However, despite several states increasing their sports betting taxes, none have taken on Illinois’s approach.

How Operators Can Manage the New Illinois Tax

Tax increases structured around gross gaming revenue (GGR) are generally easier for businesses to manage because they can adapt through promotional activities. However, in contrast, the current betting structure in Illinois forces operators into potentially less palatable responses:

• Instituting minimum bet sizes, which could lead to conflicts with player expectations and regulatory bodies concerned with responsible wagering.
• Implementing targeted promotions to entice users.
• Exploring surcharges similar to those DraftKings previously attempted and later retracted.
• Adopting price adjustments on bets to gradually recover profit margins.

Last year, DraftKings did propose a staging surcharge aimed at sports wagers in several states to contend with high taxes, but the initiative was halted when other firms opted not to join this plan.

The Increasing Likelihood of iGaming Legislation in Other States

While revenue enhancement is a pressing concern for Illinois, it doesn’t imply that other states will quickly follow suit in hiking their sports wagering taxes. Historical trends indicate a preference for diversified gaming options. It appears Illinois has initiated 50 tax hikes since the beginning of J.B. Pritzker’s governorship in January 2019.

According to Katz, “Advancing iGaming is likely a more pragmatic path for numerous state administrations. We regard New Jersey’s approach as a model for success, thanks to its balanced tax rates, rising gaming revenues, and a supportive land-based gaming infrastructure.” Debates are ongoing that the next Illinois budget may encompass measures related to iGaming—a development the industry would undoubtedly welcome, though experts eye Florida as the next likely contributor to the online gaming landscape before 2027.

Current states permitting internet gaming include Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island, and West Virginia.

In summary, while Illinois has taken dramatic steps to amend its sports betting tax policies, the impacts on the wider industry remain to be fully realized. Other states are arguably more likely to explore avenues like iGaming, rather than implementing comparable stringent measures that could inhibit both operators and consumers alike.