Illinois lawmakers have approved a new, last-minute sports betting tax hike as part of the state budget. This move is expected to disproportionately impact the nation’s largest sportsbooks and has immediately drawn sharp criticism from the industry, raising questions about potential operator responses, including the embrace of product verticals like prediction markets.

A Democrat-led faction introduced the proposed hike on sports betting taxes as the Illinois legislative session neared its close over the weekend (May 31, 2025). Faced with a massive budget shortfall, Illinois lawmakers passed a $55.2 billion state budget on Saturday, May 31. This budget, alongside tax increases on tobacco products and out-of-state business income, notably contains a proposal that will disproportionately affect the nation’s largest sportsbooks. Governor JB Pritzker has vowed to sign the bill despite strong opposition from sports betting stakeholders across the state.

For the industry titans, this surprise proposal has created a sense of “déjà vu,” recalling a progressive tax hike on sports wagering adjusted gross revenues passed just last spring (2024). That prior policy established a tax floor of 20% on AGR, up from the previous 15% across the board, and included a sliding scale with a ceiling of 40% for operators generating annual AGR of at least $200 million. In response to that previous policy, DraftKings had initially floated a proposed surcharge on customer wagers, a tactic seen from other consumer industries like Uber and airlines, though this idea was abruptly pulled last August after FanDuel indicated it would not follow suit. Under the newly proposed tax structure (June 2025), Illinois sports betting operators will additionally pay a tax of $0.25 on each of their fiscal year wagers up to the first $20 million in handle, and then $0.50 for every wager above the $20 million threshold. While this new increase is expected to have a modest impact on mid-tier operators, DraftKings and FanDuel are once more anticipated to bear the brunt of the hike.

Burden on Leading Sportsbooks

Analysis from JMP Securities estimates that if the new tax had been applied on a trailing 12-month basis, FanDuel would have faced a gross tax impact of $86 million, and DraftKings $79 million, representing a combined negative tax impact of $165 million for the two companies, which together maintain a combined market share of at least 75% in Illinois. According to these estimates, this additional tax would place Illinois in proximity to New York when it comes to the tax burden felt by the market’s two leading operators. In New York, all operators pay a 51% tax on sports wagering gross gaming revenues, a rate New York shares with New Hampshire, where DraftKings is the sole operator. By JMP estimates, the remaining eight smaller operators in Illinois would face a combined levy of around $20 million, with none shouldering an impact above 0.5%. For fiscal year 2026, the gross tax impact will represent 5.4% of DraftKings’ projected EBITDA, according to JMP.

Industry Reactions and Potential Responses

The last-minute budget addition in Illinois has ignited a “firestorm of criticism” from proponents of legal sports betting. They question whether the added tax will stifle innovation and inadvertently push customers to the illegal, offshore market. FanDuel reportedly enlisted former NFL Pro Bowl tight end Rob Gronkowski to urge Illinois lawmakers to abandon the proposal. This tax represents the first time since the PASPA decision that a state has imposed a flat fee on sportsbook operators on a per wager basis. Brendan Bussmann of B Global Advisors, a prominent advisor on sports betting regulatory matters, stated, as reported by iGaming Times, that “While the first in a nation tax was an assault on the gaming industry, it was a full frontal assault on the innovation, technology and the service economy,” adding that “It’s clearly not a business-friendly climate.”

Analysts are outlining potential scenarios for the two market leaders. Truist Securities analyst Barry Jonas, as reported by iGaming Times, outlined three potential scenarios for the two market leaders: imposing a floor for minimum bets (which he believes would be greeted unfavourably by bettors), revisiting the surcharge model, or exploring prediction markets. By launching a Kalshi-style prediction market, operators might be able to sidestep the tax burden for now. Both major operators have reportedly addressed the controversy surrounding prediction markets on recent earnings calls: DraftKings CEO Jason Robins indicated the company will monitor developments closely, while Flutter, the parent company of FanDuel, noted it has brought on a team from Betfair’s exchange business to explore the opportunity.

Neither DraftKings nor FanDuel would comment directly on the new tax when contacted by iGaming Times on Monday, June 2, referring instead to comments issued by the Sports Betting Alliance (SBA), a group representing DraftKings, FanDuel, BetMGM, and Fanatics Sportsbook. The SBA stated, as reported by iGaming Times, that “Make no mistake, this discriminatory, punitive and constitutionally suspect tax increase on legal sportsbooks who have invested more than a billion dollars in the state will be destabilising for regulated sports betting in Illinois.” The SBA added, as reported by iGaming Times, that “Customers understand that they will be the ones to bear the cost of this new tax,” and that “With this change, lawmakers are essentially urging customers - and especially these small dollar bettors - to switch to unsafe and unregulated sportsbooks who defy state consumer protections and generate zero taxes for state priorities.”

Broader Implications and Political Context

The budget approval and the sports betting tax hike occurred amidst political divisions. While the Pritzker administration celebrated the state’s seventh consecutive balanced budget, Republican opponents sharply criticised the late additions to the budget. Republican Rep John Cabello objected, as reported by iGaming Times (originally Capitol News Illinois), that the process once again lacked transparency, stating that “We’re rushing this process like we always do: ‘Let’s hide this stuff. Let’s hide it so that the public doesn’t see it until it’s too late.’” State lawmakers first introduced the proposed tax hike on sports wagers on Friday, May 30, just the day before passing the measure.

In conclusion, the latest Illinois sports betting tax hike, particularly the per-wager fee, has ignited a “firestorm of criticism” from the industry, which fears it will stifle the legal market and inadvertently drive players to offshore sites. Major sportsbooks are now weighing their options, including potentially exploring new product verticals like prediction markets, as the state navigates the financial implications of its budget decisions against the industry’s warnings of negative consequences for both legal operators and consumers.