Illinois has become one of the biggest legal sports betting markets in the United States but a tax hike proposed by the governor could act as a headwind, especially for smaller bookmakers, in the Land of Lincoln.
Governor J.B. Pritzker revealed the proposed tax hike earlier this week as part of his $52.7-billion budget for the state’s upcoming fiscal year.
Increasing the sports wagering tax by 20 percentage points, to 35% from 15%, is forecast to generate an additional $200 million in general funds for Illinois for the year starting July 1.
Pritzker’s proposal would put the sports betting tax rate in his state on the higher end of the spectrum in the U.S.: nearly on par with the likes of Pennsylvania at 36%, well above neighboring Indiana at 9.5%, and still below New York's 51% revenue share model. The looming hike in Illinois also comes after Ohio doubled its sports wagering tax rate last year to 20% from 10%.
“This change would bring Illinois’ tax rate closer to peer states’ tax structures,” Pritzker’s budget document says.
Stuck at eight
Time will tell if the legislature passes the budget with the sports betting tax hike included. It could, however, force sportsbook operators to alter their approach in the state to try to stay in the black.
The hike is also being proposed as the number of online Illinois sports betting operators has held at eight since Circa launched in the state last September. Betway then withdrew a bid for a standalone mobile wagering license in October.
It could be those smaller types of companies that are hit hardest by any tax hike in Illinois.
JMP Securities analyst Jordan Bender wrote in a note to clients on Friday that online gambling firms focus on contribution profit for a state and adjust their spending accordingly to "right-size" their business model.
Bender pointed to New York, where DraftKings and FanDuel “have gained a structural advantage through product, scale, and willingness to spend compared to the vast majority of the market, while smaller companies have seen lower investment levels and market share."
The owner of one of those smaller bookmakers, WynnBET, recently agreed to sell its online sports betting license in New York to the operator of ESPN BET.
“Therefore,” Bender added, “the effective tax rate increasing in Illinois will hurt smaller operators, and allow larger companies like DraftKings, FanDuel, and BetMGM to gain market share and help offset the tax losses.”
My money's riding on this dark horse: DK
While this could hinder the growth of the Illinois market and perhaps chase more players to offshore books, it may also get lawmakers thinking about ways to ease the financial burden on operators.
In particular, there is hope in the industry that Illinois will join a handful of other states and authorize online casino gambling. That could take the sting out of a higher tax rate for sports betting.
DraftKings CEO Jason Robins floated something similar about New York last year and mentioned during the company’s earnings call last week that Illinois is a “dark horse” for iGaming legalization.
“We believe iGaming in Illinois is only a matter of time, and if the state moves forward with the tax increase, the offset will be iGaming legislation in the near future,” JMP’s Bender said.
Stay updated with the latest picks, odds, and news! Tap the 
to add us to your favorites on Google News to never miss a story.
