Illinois sports betting tax hike hits FanDuel, DraftKings hard under Pritzker budget

Illinois lawmakers have called out online sports betting companies suggesting they could scale back operations (or close their businesses in the state entirely) after being hit with a higher graduated tax system in the latest budget. from Governor JB Pritzker.

FanDuel and DraftKings will soon have their net income taxed on a scale that tops out at 40% under the spending plan approved by the Illinois General Assembly last week. That’s up from the flat 15% rate applied to sportsbooks since the now multibillion-dollar Illinois industry launched in 2020.

The two major mobile betting giants, which raked in more than $729 million from Illinois bettors last year and have come out on top by nearly a quarter billion so far this year, say the increase is enough to force them to “reevaluate their level of investment.” and participation in the State.”

But Pritzker says it’s a matter of paying “your fair share,” and experts advise against betting on any of the big gaming companies giving up their stakes in Illinois.

“If I were governor, I would say, ‘It would be a shame if you left.’ Don’t let the door hit you on the way out,’” said Victor Matheson, an economics professor at the College of the Holy Cross in Massachusetts.

“It is a completely non-credible threat. Of course they don’t want to pay higher rates, but there is no evidence that they can’t pay. At the end of the day, they have made hundreds of millions of dollars selling a wildly addictive product, and the government should tax that,” Matheson said.

An army of lobbyists from DraftKings, FanDuel and other major betting makers, all united as the Sports Betting Alliance, made the increase a difficult proposition for lawmakers in the hectic final days of the spring legislative session in Springfield.

The governor’s proposed 35% flat tax increase turned out to be one of the biggest sticking points in protracted budget negotiations within the Capitol’s Democratic supermajorities.

Republican lawmakers opposed the measure, which also raised concerns among some Democrats wary of penalizing an industry that earned more than $1 billion and generated $150 million in state tax revenue last year.

“That’s a tough tax structure for any industry, let alone a fledgling one,” said state Rep. Curtis Tarver, D-Chicago, who ended up voting for the budget bill that landed on a graduated tax system on gambling. sports fees similar to what Illinois casinos pay.

The tiered system drawn up by Pritzker’s budget team taxes bookmakers 20% of revenue after paying winners up to $30 million, 25% of revenue up to $50 million, 30% of income up to $100 million, 35% of income up to $200. million and 40% of anything beyond that.

That leaves FanDuel and DraftKings hit hardest, as the only sportsbooks among the list of 13 Illinois that grossed more than $100 million last year.

FanDuel paid nearly $62 million in state taxes on nearly $411 million in revenue last year, the largest windfall in the state. DraftKings paid about $48 million in taxes on $319 million in revenue, Illinois Gaming Board records show.

Under the graduated system, FanDuel would have paid the state about $145 million, while DraftKings would have had to pay $109 million.

Share prices of publicly traded companies fell about 8% and 10%, respectively, earlier this week after lawmakers sent the tax increase to Pritzker’s desk.

Sports Betting Alliance President Jeremy Kudon said the new fees “counterproductively penalize sports betting operators who invested millions in the local economy and created jobs in the state,” and leaves them “no choice but to” reconsider. its operations in Illinois.

“This tax increase not only threatens the legal and regulated sports betting market: it will have devastating effects for the operators’ partners in the state, including the most vulnerable casinos in the downstate, which depend on sports betting revenue for create jobs and invest in communities. ”Kudon said.

In a tight budget year, Pritzker’s office estimates that the graduated system will actually bring in the state a little more than the $200 million it expected from a 35% flat tax.

“Governor. Pritzker believes corporations should pay their fair share in Illinois. Now, thanks to these adjustments, which bring the State in line with similarly sized markets, they will do so,” a Pritkzer spokesperson said in an email.

Bookmakers pay a whopping 51% tax on their online betting winnings in New York, the highest gambling state in the US. Rates are about 36% in Pennsylvania, 20% in Ohio , 13% in New Jersey and 7% in Nevada.

Matheson’s research on sports betting markets has found no correlation between higher state tax rates and the amount of money people gamble.

“Many states, in the rush to add sports betting, have greatly underestimated them. And businesses are still doing well in New York,” he said. “It is reasonable to ask more of an industry to mitigate the harm of the addiction that accompanies it.”