Professionals are cautioning that Illinois’s proposed hike in sports wagering levies could spark similar actions in other states.
Illinois legislators are advocating for a boost in sports betting taxes, which could inspire other states across the nation to follow suit, according to experts at B Global Consulting.
Last week, the Illinois House of Representatives approved a progressive betting tax rate that would see the state’s most prosperous sports betting operators taxed at 40%, considerably higher than the current 15%.
The new tax structure establishes rates between 20% and 40%, contingent on each operator’s adjusted gross revenue (AGR). Operators with an AGR surpassing $200 million (£157 million/€184 million) would face the 40% top rate, second only to New York’s 51%.
Other thresholds include a 20% tax rate for operators with an AGR below $30 million, 25% for $30 million to $50 million, 30% for $50 million to $100 million, and 35% for $100 million to $200 million.
The proposition is part of Illinois’s fiscal year 2025 budget and is currently awaiting Governor JB Pritzker’s approval. If Pritzker decides to endorse the bill, the new tax rates would take effect on July 1.
The possible cascading impact of the betting tax increase.
Brendan Bussmann, an advisor at B Global, a company that works with the gaming, sports, and hospitality sectors, expressed his concerns in a Truist report. He’s apprehensive about the potential ripple effect of the tax hike, suggesting that other states might follow suit and increase their taxes as well.
“Illinois is the second state after Ohio to raise its tax rate (Ohio increased its rate from 10% to 20% in 2023), and investors are becoming anxious about this spreading to other states,” Bussmann stated.
Bussmann pointed out a few other states, emphasizing recent activity that might indicate a shift towards higher taxes. Massachusetts considered increasing its tax rate this year but dropped the idea, which Bussmann believes is improbable to occur in the future.
Bussmann noted that New Jersey has also been discussing raising its tax rate. However, he believes this is improbable given the state’s long experience with gambling regulations. He also mentioned Pennsylvania as a possible contender, but suggested that the state is more focused on the rise of skill-based gaming.
Illinois’s tax increase harms the biggest contributors.
Bussmann, who favors low-tax environments, criticized Illinois for targeting the most profitable operators. He pointed out that higher tax rates would harm those who already pay the most taxes in the state.
He also cautioned that raising taxes could damage Illinois’s overall market.
As operators confront escalating expenses, this could prompt them to discontinue promotional offers, curtail product selections, and present less favorable odds.
Shares of Flutter Entertainment, the parent entity of DraftKings and FanDuel, all declined following the announcement of these strategies. DraftKings and Flutter will encounter the most substantial tax burdens due to their AGRs exceeding $200 million.
Moreover, Bussmann even asserted that the tax hike will prove most advantageous to offshore gambling operators. Given that these entities do not pay taxes, any possibility of licensed operators exiting the market will result in an influx of traffic to them.
What transpires elsewhere?
In the long term, Bussmann expresses apprehension that states yet to legalize gambling will establish higher tax rates initially without comprehending the industry’s dynamics.
States that have not legalized gambling include Minnesota, which ran out of time during the recent legislative session, and Georgia and Missouri, where voting initiatives for November referendums could face robust opposition from brick-and-mortar casinos.
Bussmann indicated that California and Texas remain pivotal states to monitor due to their size and potential impact on the overall legal gambling landscape within the US. According to Bussmann, California is engaging in productive discussions regarding sports betting for a 2026 referendum. However, he added that action is more probable in 2028 due to persistent opposition from tribal groups.
Within the Lone Star State, Governor Greg Abbott stands against legalized wagering, suggesting any movement on this front is improbable for years, possibly extending to 2027.
In other regions, Busman highlighted that the District of Columbia Lottery and Charitable Games Office opted to transition from Gambet DC to FanDuel. He noted this shift sparked immediate enthusiasm, leading to discussions about expanding the market to additional operators.
Might we witness a surge in legal online wagering?
Beyond sports betting, Busman acknowledged that Arkansas contemplated legalizing online gambling earlier this year. However, this endeavor ultimately faltered, and Busman indicated legalization is unlikely to occur in the near future.
Maryland also failed to enact an online gambling bill during the most recent legislative session, despite the state’s ongoing budgetary constraints that could fuel related conversations.
Furthermore, Illinois itself remains a potential candidate for legalizing online gambling, and Busman anticipates the state taking action at some point. However, he acknowledges that other legal activities within the state could impede progress.
Aside from higher sports betting taxes, Illinois also faces hurdles in expanding video gaming terminals to Chicago and Bally’s constructing a land-based casino in the downtown area.
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