Illinois Sports Betting Tax Hike Sparks Industry Backlash

SPRINGFIELD, IL – In the final moments of its spring legislative session, the Illinois General Assembly passed a sweeping $55.2 billion budget that included a surprise tax hike on sports betting, rattling the industry and prompting renewed interest in prediction markets as a potential workaround.

The move, introduced by a Democratic bloc and passed late Saturday night, raises taxes on sportsbooks operating in the state—particularly targeting major operators like DraftKings and FanDuel, which collectively hold more than 75% of Illinois’ market share. The new law introduces a per-wager tax structure and layers additional costs atop last year’s already controversial progressive tax scheme.

Governor JB Pritzker has pledged to sign the bill, touting it as part of a broader effort to address Illinois’ persistent budget shortfalls. The tax increases also extend to tobacco products and out-of-state corporate income.

Details of the Tax Structure

Under the new framework, sports betting operators will be taxed $0.25 for every wager up to $20 million in annual handle, and $0.50 per wager beyond that threshold. While mid-sized and smaller books will see limited impact, the burden falls heavily on dominant players.

JMP Securities estimates the changes would have cost FanDuel $86 million and DraftKings $79 million had they been in place over the past 12 months. By comparison, the remaining eight operators in the state would face a combined impact of just $20 million. This builds on last year’s shift from a flat 15% tax on adjusted gross revenues (AGR) to a progressive model starting at 20% and capping at 40% for operators with more than $200 million in AGR.

Industry Response and Potential Workarounds

The last-minute nature of the bill drew harsh criticism from sportsbook operators, trade groups, and political opponents. Brendan Bussmann, managing partner of B Global Advisors, called the tax “a full frontal assault on innovation,” warning that it could damage the state’s reputation among technology firms.

The Sports Betting Alliance, representing major operators including DraftKings, FanDuel, BetMGM, and Fanatics Sportsbook, issued a joint statement condemning the tax as “discriminatory, punitive and constitutionally suspect.” Notably, analysts and company executives are now exploring alternative models to blunt the financial hit. Among the options being discussed: launching prediction markets.

Prediction markets—platforms where users can buy and sell shares in the outcomes of future events—are not currently subject to the same tax structure as traditional sportsbooks. Barry Jonas of Truist Securities suggested that such markets, modeled on platforms like Kalshi, could serve as a tax-efficient alternative for large operators.

Flutter, the parent company of FanDuel, confirmed it has assigned a team from its Betfair exchange to assess the opportunity. DraftKings CEO Jason Robins indicated the company is monitoring developments closely.
Comparisons to Other States and Broader Implications The Illinois tax hike brings the state closer to New York’s model, where all sportsbooks pay a 51% tax on gross gaming revenue—currently the highest in the nation, matched only by New Hampshire.

With this move, Illinois becomes the first state to impose a flat per-wager fee on sportsbooks since the repeal of the federal PASPA law in 2018, a decision that opened the door to state-by-state legalization. Critics worry the change could backfire. FanDuel enlisted former NFL star Rob Gronkowski to lobby against the bill, arguing that higher costs may be passed to consumers or push bettors back toward unregulated, offshore markets.
Political Fallout and Transparency Concerns

Republican lawmakers lambasted the last-minute maneuvering. Representative John Cabello criticized the lack of transparency, accusing the Democratic leadership of hiding the tax provision until it was too late for meaningful debate.

“This is the same story every year,” Cabello said. “We’re rushing this process so the public can’t react.” Meanwhile, the Pritzker administration has celebrated the passage of what it calls the state’s seventh consecutive balanced budget.

 

While the first-in-the-nation tax was an assault on the gaming industry, it was a full frontal assault on the innovation, technology and the service economy,” said Brendan Bussmann, managing partner at B Global Advisors. “It’s clearly not a business-friendly climate.

Looking Ahead

As the industry absorbs the implications of the new tax regime, the focus now shifts to how operators respond. Whether through pricing adjustments, new market strategies, or innovation in the form of prediction markets, the ripple effects of Illinois' decision are likely to extend beyond state lines.

For now, the state stands as a testing ground for the future of sports wagering—and how far governments can push the boundaries of taxation before innovation seeks the path of least resistance.