Chicago's 10.25% sports betting tax has taken effect after operators withdrew an injunction request, though a constitutional challenge remains active while state lawmakers propose bills to preempt the city's levy.
The battle between Chicago and major sports betting operators has entered a new phase. As of 1 January 2026, the city's controversial 10.25% tax on sports wagering revenue is officially in effect.
The Sports Betting Alliance (SBA)-representing industry giants like DraftKings, FanDuel, BetMGM, and Fanatics-had filed a lawsuit in Cook County seeking an emergency injunction to block the tax. The operators argued that the city had created a licensing requirement without actually establishing a mechanism to issue those licences, leaving them in a legal grey area.
However, in a last-minute manoeuvre, the city issued the necessary licences just before the New Year deadline. Consequently, the SBA withdrew its request for a temporary restraining order (TRO), allowing operations to continue uninterrupted. While the immediate threat of a shutdown has passed, the legal war is far from over; the SBA is proceeding with its lawsuit challenging the city's constitutional authority to impose the tax, with a court hearing now set for March.
The new city tax creates one of the most burdensome fiscal environments for sportsbooks in the United States. Operators in Chicago must now navigate a "layer cake" of taxes:
Mayor Brandon Johnson allowed the budget to pass without his signature to avoid a government shutdown, stating he would not "add the risk and speculation" of a veto. The budget also includes new taxes on social media and liquor, signalling a broader strategy to plug the city's deficit through consumption levies.
The focus now shifts to the state capital, Springfield, where lawmakers are preparing to intervene. Representative Dan Didech, chair of the House Gaming Committee, has filed HB 4171, a bill designed to explicitly prohibit municipalities from creating their own sports betting taxes.
"When the legislature legalised sports betting in 2019, it was never our intent to allow local governments to create their own rules," Didech stated. He argues that the city's tax will cannibalise state revenue and drive bettors to the black market.
Additionally, State Senator Patrick Joyce has proposed a "retaliatory" measure that would reduce Chicago's share of state income tax distributions by an amount equal to whatever the city collects from its sports betting tax, effectively neutralising the revenue gain for City Hall.
The withdrawal of the injunction is a tactical retreat, not a surrender. By securing their licences, the operators have ensured business continuity while they prepare for the constitutional argument in March. Their legal case rests on the premise that "home rule" municipalities cannot tax activities that the state has preemptively regulated-a grey area in Illinois law.
The real story here is the effective tax rate. When you combine the 40% top-tier state tax, the 2% county tax, the 10.25% city tax, and the insidious impact of the per-wager fee (which can equate to a 10-15% GGR tax equivalent for low-margin operators), Chicago-based sportsbooks could be looking at an effective tax rate exceeding 60-70%.
At that level, the economics of the business fundamentally break. Operators will likely respond by slashing marketing spend in the Chicago area or, more drastically, intentionally offering worse odds (higher vigorish) to Chicago-geolocated players to offset the cost. This would inevitably drive players to offshore sites or simply across the border to Indiana, fulfilling the "predatory market" warning cited by Rep. Didech.
Sports Betting Alliance sues Chicago over tax in new budget
This video outlines the initial filing of the lawsuit by the Sports Betting Alliance and the core arguments regarding the tax's potential to drive users to illegal markets.
