FanDuel, DraftKings to "reevaluate" Illinois operations over sports betting tax hike; Gov. says companies to pay "fair share"

Major online oddsmakers like FanDuel and DraftKings claim they have to “reevaluate” their Illinois operations in response to a hefty tax increase. Meanwhile, Gov. J.B. Pritzker argues the state is just getting its "fair share" from the $1 billion industry.

The issue follows Illinois legislators' implementation of a higher graduated tax system on online sports betting companies as part of Pritzker’s latest budget. As a result, major players in the Illinois market such as FanDuel and DraftKings will see their net revenue taxed on a scale that reaches 40%. This is an increase from the previous 15% flat rate since the industry’s launch in 2020.

The new tax system has prompted FanDuel and DraftKings to say they'll reconsider their operations in Illinois. They argue the hike is significant enough to affect their "level of investment and participation in the state.” Last year, these companies generated over $729 million from Illinois bettors, and they have made nearly a quarter-billion dollars so far this year.

Pritzker, however, maintains that the tax increase ensures these companies pay "their fair share." Moreover, experts, like Victor Matheson, an economics professor at the College of the Holy Cross, are skeptical that the companies will actually leave the state.

“It’s a completely non-credible threat. Of course, they don’t want to pay higher rates, but there’s no evidence they can’t pay. At the end of the day, they’ve made hundreds of millions of dollars selling a wildly addictive product, and the government should tax that,” Matheson was quoted as saying in a Chicago Sun-Times report.

DraftKings, FanDuel, and other major oddsmakers, represented by the Sports Betting Alliance, lobbied extensively against the tax hike during the legislative session. The governor’s initial proposal of a 35% flat tax faced significant opposition, especially from Republican lawmakers and some Democrats concerned about its impact on the industry. Eventually, a graduated tax system was agreed upon, similar to the one imposed on Illinois casinos.

Under the new system, sportsbooks will be taxed 20% on revenue up to $30 million, 25% up to $50 million, 30% up to $100 million, 35% up to $200 million, and 40% on anything beyond that. This structure primarily affects FanDuel and DraftKings, the only sportsbooks in Illinois to surpass $100 million in revenue last year.

In 2022, FanDuel paid $62 million in state taxes on $411 million in revenue, and DraftKings paid $48 million on $319 million. Under the new system, FanDuel’s tax bill would have been approximately $145 million, and DraftKings would have owed $109 million, the report said.

Following the announcement of the tax hike, stock prices for both companies fell last week. Jeremy Kudon, president of the Sports Betting Alliance, stated the new rates penalize operators who have significantly invested in the local economy and created jobs.

“This tax hike doesn’t just threaten the legal, regulated sports betting market — it will have devastating effects for operators’ in-state partners, including the most vulnerable downstate casinos, who rely on sports betting revenue to create jobs and invest in communities,” Kudon said, as per the report.

Despite these concerns, Pritzker’s office projects the graduated tax system will generate slightly more than the $200 million anticipated from a flat 35% tax.