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Illinois Raises Betting Taxes, Eyes Online Casino Legalization

Illinois increases sports betting tax, impacting online gaming operators and potentially paving the way for future online casino legalization as the state seeks new revenue sources.
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Branimir Ivanov | Senior News Contributor

Updated: Jun 10, 2024

Illinois Uphill Battle

Illinois online gaming operators find themselves grappling with a fresh set of hurdles following the enactment of a budget bill by Governor JB Pritzker. This legislation brings forth a notable increase in the state's sports betting tax rate, presenting operators with unforeseen challenges. While the primary objective of this measure is to address the imperative of balancing the state's budget, its implications extend beyond mere fiscal considerations.
Indeed, the heightened tax rate on sports betting operations could potentially serve as a catalyst for broader legislative discussions surrounding the legalization of online casinos in Illinois. Thus, what initially appears as a fiscal adjustment aimed at financial equilibrium may, in fact, mark a pivotal moment in the trajectory of Illinois' gaming industry, signaling the dawn of a new era with far-reaching implications for both operators and legislators alike.

 

Tax Changes for Sports Betting

Under the new legislation:

  • 20% on the first $30 million of adjusted gross revenue (AGR)
  • 25% on AGR between $30 million and $50 million
  • 30% on AGR between $50 million and $100 million
  • 35% on AGR between $100 million and $200 million
  • 40% on AGR over $200 million

 

Video Gaming Terminal Tax Increase

In addition to changes in sports betting taxes, the budget bill also includes a 1% increase in the tax rate for video gaming terminals (VGTs). This adjustment is projected to generate an extra $35 million per year for Illinois. The increase in VGT taxes reflects a broader strategy to tap into existing gaming frameworks to meet the state’s revenue needs without imposing new taxes on individuals or businesses.

House Gaming Committee Chairman Dan Didech commented on the necessity of the tax hike, noting it was essential to achieve a balanced budget for the fiscal year. He acknowledged that while operators might see reduced profits, they are expected to remain profitable and stay in the Illinois market. Didech expressed confidence that the adjustment would not deter operators and suggested that discussions on iGaming could become more prominent as Illinois continues to explore additional revenue avenues.

Rep. Edgar Gonzalez, the sponsor of online casino bill HB2239, discussed the trajectory of iGaming legislation. He mentioned that while early-session conversations about online gaming faced resistance, there was a shift toward the end of the session as budget pressures grew. Gonzalez highlighted that next year's anticipated budget challenges could further drive the conversation on iGaming legalization, suggesting that the increased need for revenue might make lawmakers more receptive to considering online casinos as a viable option.

 

Future Revenue from Gaming Expansion

Illinois legislators recognize that future revenue increases from gaming will likely stem from expansion rather than further tax hikes. Didech explained that the state has likely reached its limit on what can be generated through tax adjustments alone. Consequently, attention may now turn to expanding gaming opportunities, such as integrating VGTs into the Chicago market or legalizing online casino operations. Projections indicate that the introduction of online casinos could initially generate $500 million, potentially reaching $800 million as the market stabilizes.

 

Stakeholder Challenges for iGaming

To advance iGaming legislation, stakeholders will need to address several key concerns. These include ensuring robust responsible gaming measures and reconciling the interests of VGT operators and labor unions, who currently benefit from revenues allocated to infrastructure projects. The debate has intensified among lobbyists from both sides, reflecting the complexity of integrating online casinos into the state’s existing gaming landscape. Gonzalez emphasized the importance of continuing dialogue about responsible gaming and mitigating the perceived risks associated with iGaming.

The potential expansion of VGTs into Chicago is seen as a more immediate and feasible step compared to the legalization of online casinos. Didech suggested that expanding VGTs, already prevalent in other parts of Illinois, could be the next logical progression. A committee in Chicago is currently reviewing this possibility, and the expansion could serve as a precursor to broader gaming reforms. However, Didech acknowledged that the state’s revenue needs could ultimately necessitate simultaneous efforts to both expand VGTs and introduce iGaming.

 

“Even with the new tax structure, operators will probably do very well in Illinois… at some point there will be iGaming in Illinois, and I’m sure they want to participate in that as well.”

 

Conclusion

Illinois' strategy to balance its budget by increasing gaming taxes underscores the growing reliance on the gaming industry as a critical revenue source. With tax hikes now in place, the state is poised to explore further expansion opportunities, including the legalization of online casinos and the extension of VGT operations into Chicago. These potential changes reflect ongoing efforts to address Illinois' fiscal challenges while adapting to evolving gaming market dynamics.

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