The state of Illinois is considering passing a new tax rate for sports betting, which will add 25 cents to each bet for an operator’s first 20 million wagers, and 50 cents for every wager thereafter. But sports betting operators aren't taking the proposed rise in tax rates lightly, and the Sports Betting Alliance has issued a statement announcing the new sports betting tax rate as discriminatory and against the constitution.

In a move that sent shockwaves through the sports betting industry, Illinois lawmakers approved a new per-bet tax just minutes before midnight on Saturday. The change, part of a wider $1 billion revenue package aimed at supporting public transit, has drawn fierce criticism from industry stakeholders and raised concerns about its long-term impact on legal sports betting in the state.

New tax targets volume, not revenue

Under the newly passed measure, sportsbook operators will be required to pay 25 cents per bet for their first 20 million wagers each year, and 50 cents per bet for every wager thereafter. This is in addition to last year's progressive tax reform, which increased sports betting tax rates from a flat 15% to as much as 40%, depending on a sportsbook's adjusted gross revenue.

Analysts say this marks the first time a state has implemented a fixed-rate tax on each individual wager, regardless of size. The director of excise tax policy at the Tax Foundation, Adam Hoffer, noted that such a structure could heavily distort the market. "It's going to be practically impossible for sportsbooks in Illinois to offer $1 bets," Hoffer said. This is not how good tax policy works. It discourages small-stakes participation and pushes players toward riskier alternatives, he added.

Industry voices unite in opposition

In an unusual show of unity, competitors DraftKings and FanDuel - longtime rivals in the online sportsbook space - voiced their opposition through their respective proxies. FanDuel-backed The Ringer posted a now-deleted tweet urging fans to oppose the tax, while Barstool Sports' Dan Katz, affiliated with DraftKings, called the proposal "very bad" in a video shared to his followers.

The Sports Betting Alliance, a coalition representing the two giants alongside Fanatics and BetMGM, issued a strongly worded statement condemning the tax as "discriminatory, punitive, and constitutionally suspect."

"With this change, lawmakers are essentially urging customers - and especially these small-dollar bettors - to switch to unsafe and unregulated sportsbooks," the SBA warned. "Illegal operators are the big winners from Saturday' vote."

Impact likely to hit customers and fuel illegal market

Industry experts agree that the tax burden, though technically imposed on operators, will ultimately fall on bettors. Robert Walker, ARMS' director of operations and a veteran of the Las Vegas sportsbook scene, called the move "short-sighted revenue grabbing."

Operators will raise minimum bet amounts, and the casual bettor will be priced out, Walker said. It undermines the entire purpose of regulation, which is to protect consumers and create a competitive, transparent market, he added. Walker also warned that the tax sets a "dangerous precedent," suggesting that other states may follow suit.

Truist analysts echoed that concern in a research note on Sunday, stating that while the biggest burden will fall on market leaders FanDuel and DraftKings, smaller players like BetMGM and Fanatics will not be immune. The note also highlighted the potential for illegal markets to grow as a result of the policy, warning that "we fear other states could look to copy (Illinois)."

Future of regulated sports betting at risk?

The broader sports betting industry is already facing increased pressure from new forms of competition, including prediction markets offered by platforms like Kalshi, which are not subject to gambling taxes per state. With Kalshi's offerings now appearing on platforms like Robinhood, traditional sportsbooks may be facing a pivotal moment. This comes at a time when the industry needs stability, not added costs, said Walker. He continued, instead, we're seeing policies that could alienate the very customers lawmakers say they want to protect.

The Sports Betting Alliance has pledged to continue fighting the Illinois tax and to oppose similar measures in other states. But for now, the Prairie State has taken a bold - and, some say, dangerous - step that could reshape the future of legal sports betting across the country.