Illinois' OSB Tax Strategem Likely Not to Trigger Similar Actions Among Analysts
Posted on: June 2, 2025, 02:45h.
Last updated on: June 2, 2025, 02:45h.
@etfgodfather Todd Shriber Read More Finance & Investment Gaming Business Mergers and Acquisitions
- Illinois imposes hefty taxes on sports betting operators, with 25 cents per wager on the first 20 million bets, doubling to 50 cents thereafter
- Shares of sports betting giants FanDuel and DraftKings take a hit due to the news
The news about Illinois implementing another tax hike on sports betting has caused a bit of a stink in the related stocks today. But don't sweat it, as not every state will be ready to follow in the footsteps of the Land of Lincoln.
Under the new plan, operators will be forced to cough up a levy of 25 cents per wager on the first 20 million bets. After that, it's doublespeak - 50 cents per wager. FanDuel and DraftKings, the heavyweights in online sports betting, will be feeling the heat the most, so it's no surprise their shares are in the red today. But fear not, other states might not join the Illinois tax scheme bandwagon.
"More concerning for the group than the initial tax impact is the possibility that other states could follow suit," wrote Jefferies analyst David Katz in his report to clients. "However, we don't think this is a foregone conclusion given the history of tax policy in specific states."
Around this time last year, Illinois implemented a progressive sports betting tax hike under which the big boys paid more than their little partners. This stirred up some fears that other states would follow suit, but while other states have lifted sports betting taxes, none adopted the Illinois model.
How Operators Can Respond to Illinois' Tax Increase
Tax increases on gross gaming revenue (GGR) can be managed by adjusting promotional activities, but that's not what we're looking at here. The Illinois per-wager tax leaves gaming operators with a less-than- appetizing menu of options. They could impose minimum bet sizes, but that would raise a fuss, to put it mildly. Regulators wouldn't be too happy either. Targeted promotions are a possibility, but so is revisiting the surcharge effort that DraftKings tried last year but quickly abandoned.
"We expect this strategy would only be pursued in conjunction among all operators," adds Katz. "A more likely scenario is that they'd offset the tax with subtle pricing changes, which over time recovers the margin."
Last year, DraftKings announced a per-bet surcharge on sports wagers in Illinois, New York, Pennsylvania, and Vermont as a way to mitigate those states' taxes. However, the plan was scrapped once other gaming companies decided to back out.
What about iGaming in Other States?
Illinois isn't the only state needing a financial boost, but that doesn't necessarily mean other states will swiftly jump on the sports wagering tax bandwagon. Historically, states don't tend to work that way, whereas Illinois has slapped on 50 tax increases since Gov. J.B. Pritzker took office in January 2019. What could happen instead is more states considering iGaming and adopting the New Jersey model of taxation.
"iGaming legalization is more of a logical outcome for many state governments," observes Katz. "We see New Jersey as a clear model for other states to follow, offering reasonable tax rates, continued handle growth, and enthusiastic land-based participation."
There's talk that the next Illinois budget could include iGaming, a move that would make the industry pretty darn happy. On the flip side, some experts are predicting Florida as the only new addition to the roster of internet casino states before 2027. Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island, and West Virginia are already on board with iGaming.
- The new taxes imposed by Illinois on sports betting operators could potentially discourage other states from adopting a similar policy.
- The Illinois tax scheme, which imposes 25 cents per wager on the first 20 million bets, and increases to 50 cents thereafter, has caused sports betting giants FanDuel and DraftKings to experience a decline in share prices.
- According to Jefferies analyst David Katz, the possibility of other states adopting this tax scheme is not a certainty, given the history of tax policy in specific states.
- Operators in the gaming industry may need to find creative solutions to manage the impact of the Illinois tax increase, such as adjusting promotional activities, imposing minimum bet sizes, or implementing subtle pricing changes over time.
- DraftKings previously attempted to mitigate taxes in Illinois, New York, Pennsylvania, and Vermont by announcing a per-bet surcharge, but the plan was abandoned when other gaming companies decided to pull out.
- States may instead choose to consider iGaming and adopt the New Jersey model of taxation, which offers reasonable tax rates, continued growth, and enthusiastic land-based participation.
