On May 31st, the state of Illinois passed SB2510 which established a $55.2B budget for the government in 2026. The bill did nothing to address the structural problems with spending in the state and instead focused on short-sighted tax increases to attempt to balance revenue with the budget. Due to approaching deadlines, there was less than 24 hours for review of this bill. This is the recipe for how a 25 to 50 cent per sports bet tax was included in the bill purporting to raise an additional $36 Million in tax revenue. Sportsbook operators in Illinois must now pay 25 cents per bet for the first 20 Million bets they accept and 50 cents per bet for any bets in excess of this threshold. The 'per bet' tax adds to the tax burdens of sportsbook operators in Illinois which are already elevated relative to other states. Online only Illinois sportsbooks pay $20 million up front as a license fee just to operate in Illinois, but they can partner with land-based casinos to reduce this license fee to $10 Million. They remit 20-40% of their Gross Gaming Revenue (GGP) [wagers minus wins paid out] as a tax to the state of Illinois. Compare this to neighboring Iowa where sportsbooks are licensed at $45,000 and taxed at 6.75%.
And yet, even with the tremendous tax burden, some operators have been able to conduct business in Illinois. Maybe that's what emboldened Illinois Democrats to include such a poorly considered additional tax which takes effect July 1st, 2025.
Let's analyze a $5 wager on a -110/-110 market like a spread for an NFL game. A typical hold (vig) for a sportsbook on a main market is 4.5%. Overly simplified, this means that in the long run, that $5 wager will make a sportsbook 22.5 cents. Already we can see that this wager isn't viable anymore. The sportsbook can't accept it as they will lose money just on the 'per bet' tax. This is before we start to consider all of the other taxes and expenses like marketing costs a business has to cover. Sportsbooks will be forced to respond. They can continue operations, but they must increase the hold %. They must also eliminate or reduce promotions which were a source of real value for sports bettors. They may instead choose to cease operations.
This tax is a rare lose/lose/lose/lose as I see 4 groups who will be affected by this negatively in different ways.
Sharp Bettors - There are some of us who make a real side living or even a main income from gambling on sports. These people have been completely eliminated by this tax. The sportsbooks will be forced to eliminate promotions and increase hold size on markets to such an extent that it will be impossible for smart bettors to make money. So they will stop. The tax revenue they generated for the state of Illinois will completely dry up. Beyond just thinking of Illinoisians as wallets that can be reached into by the state, consider that these people and their families will now be worse off. They may decide to leave the state of Illinois completely, taking their income, sales, and real estate tax payments with them.
Gambling Addicts - Not only does this law reach deeper into the pockets of those with gambling addiction, but it actively encourages destructive gambling behaviors. 25 cents on a $5 wager is 5% of the wager. With existing hold %, we can expect a gambling addict to lose 9.5% of their money over time with $5 wagers after this tax comes into effect. But something occurs to the gambling addict...if I wager $20, now I'm only losing 5.75% over time. $100...4.75%. The gambling addict won't think in those specific analytic terms, but they will see that this tax is diluted with larger wagers. Sportsbooks will likely have to impose minimum bets to deal with this tax. This tax encourages destructive habits for the most vulnerable among us.
Operators - Obviously the sportsbooks and their shareholders are completely devastated by this tax. They must now make hard decisions about whether to even continue business operations. The bigger operators - Fanduel and Draftkings - need to worry about what to do if they get to 20 million wagers as that's when the tax becomes 50 cents per wager - a figure so horrible I'm not sure what they even do. If I'm an executive at one of those companies, why even try to compete for more betting handle in Illinois? Shut down promotions. Bake extra vig into every bet. Consider predatory practices to increase revenue from losing bettors. Ban winning bettors.
The State of Illinois - This type of tax will actually decrease or keep flat the amount of tax revenue the state collects. Governments often think that they can raise taxes and raise taxes and that tax revenues will go up. But at a certain point, this is not the case [read: Efficient Tax Hypothesis]. This is the type of onerous tax that will force sports bettors en masse to flock to illegal sportsbooks and to those quasi-legal "Sweeps Coins" sites which are not protected and regulated by the state and for which the state sees no tax income. The amount of revenue that the state estimates to collect from this tax does not consider the sharp decrease the tax will cause in legal sports betting and the lost existing tax revenue therefrom.
How bad will this get for legal sports bettors in Illinois? Let's examine the 2024 Sports betting Handle data.
I combined professional, college, motorsports and other events which are each reported separately into a pivot table to get the full picture for 2024. Tier 1 wagers are simply wagers on specific events with an outcome like a team to win or cover the spread. Tier 2 wagers are everything else like player props.
We can see that Fanduel (Fairmont) and Draftkings (Casino Queen) dominate sports betting in Illinois. This means 82.8% of the wagers taken in the state last year were above the 20,000,000 bet threshold. Therefore, Fanduel and Draftkings need to be acting at the margins and analyzing this tax at 50 cents.
The mean wager in 2024 was $37.83. The median is likely much lower due to right skew, but we don't have that data.
On $40 -110/-110 wagers, the expected GGP for a sportsbook would be $1.80 [$40*.045]. Take away 50 cents in tax and they are left with $1.30. Take away another ~30% for GGP tax and they are down to $.76. Now consider that we haven't even addressed covering the cost of the massive license fees in the state. Additionally, it cost money to run a business. There are employees, real estate, technology and marketing costs.
So I think we will start seeing -115/-115 or (shivers) -120/-120 main markets. And the alternative markets which already have massive vigs, we may see -125/-125. Futures markets and other many-way markets like golf where it is easiest to hide the vig will be hit hard. There will have to be some kind of minimum bet which goes against every 'Responsible Gaming' PSA the hypocritical state of Illinois has put out.
After the tax takes effect and we observe these conditions, why would anyone except addicts wager on markets that will have to be 10%+ hold when you can go to sites like NoVig which have a good reputation and hold < 1%. These sites circumvent gambling laws by operating as peer-to-peer exchanges for bets. They can't accept cash bets, but they skirt this by accepting your money, converting into their own currency, and allowing you to bet with that. Then at withdrawal time you can convert their currency back to good ole' USD. There are drawbacks, however. If a legal Illinois sportsbook goes awry of the law in refusing to pay a bet, I can complain to the Illinois Gambling Commission and get my money. I would have no such resource with a non-sanctioned company.
But this is where gamblers are being pushed to by the state of Illinois. Fewer wagers in a functioning, regulated system and more illegal or non-regulated wagers. The result is poorer, less free, and less protected Illinoisians and less tax revenue for Illinois.
