On the face of it, raising the sports betting tax rate seems like a good way for any state to bring in more revenue. But stakeholders say Illinois consumers will likely be the recipients of unintended consequences. During the house budget debate, one Republican representative suggested an appropriations line for funds to treat the Democrats’ unchecked “spending addiction.”
The budget bill is now headed to Pritzker’s desk, and it seems like a slam dunk that he will sign it. That, stakeholders say, will seal the fate of Illinois bettors.
“Players are probably going to see fewer promotions, and that is not good for the consumer,” West Virginia lawmaker and government affairs chief for Play ‘n Go Shawn Fluharty told iGB. “It could impact the lines, and that is another negative for the consumer. And it could force some operators out, which means less choice, which is also bad for the consumer.”
Increase bigger than Pritzker proposed
The progressive tax-rate idea surfaced last last week. The senate amended and passed the house budget bill 26 May. Two days later, the house concurred on a FY2025 budget that includes $700m (£549.7m/€645.1m) in tax increases. The bill must be sent to Pritzker within 30 days of passage.
Prtizker was the reason the legislature even considered a hike. The governor earlier this year began talking about an increase and ultimately proposed bumping the 15% tax rate to 35%. In the end, at least some operators will end up with an even bigger increase.
The budget that the general assembly sent to Pritzker includes a graduated tax rate that is dependent on adjusted gross revenue. Here’s a look:
- 20% tax on AGR up to $30m
- 25% on AGR of revenue between $30m-$50m
- 30% on AGR of revenue between $50m-$100m
- 35% on AGR of revenue between $100m-$200m
- 40% on AGR of revenue over $200m
The proposal separates retail and digital AGR, meaning that any in-person bets with a sportsbook will be taxed separately from digital bets. In 2023, no brick-and-mortar sportsbook reached wagering AGR of $30m, so it’s likely that going forward, all will be taxed at 20%.
It’s unclear if operators will pay a blended or single rate once AGR exceeds $30m. Seven of the state’s eight digital platforms had AGR above $30m last year. Will the first $30m of an operator’s AGR be taxed at 20%? And then the amount between $30m-$50m taxed at 25%? If so, operators will pay a blended rate.
Smallest operator would still see a 30% increase
On the digital side, DraftKings ($350m) and FanDuel ($421m) exceeded the $200m threshhold for FY 2024. Under the new plan, both would be taxed at 40%, a more than 140% increase. No other operator had AGR above $100m. The other six operators would see their tax burden increase up to 100%:
- BetRivers ($81m) new tax rate — 30%
- Fanatics ($51.7m) new tax rate — 30%
- BetMGM ($44m) new tax rate — 25%
- Penn/ESPN Bet ($42.3m) new tax rate — 25%
- Caesars ($36.1m) new tax rate — 25%
- Circa ($880k) new tax rate — 20%
The Sports Betting Alliance (SBA), comprised of BetMGM, DraftKings, Fanatics, and FanDuel, went beyond what Fluharty had to say.
“It’s also a subsidy to bookies and illegal market: legal operators have just started to make serious inroads into Illinois’ robust illegal sports betting market,” the SBA said in a statement. “Worse odds, no promotions, worse product all give the offshore illegal market apps (who pay no tax) a massive leg up when competing for customers. We shouldn’t be driving back customers to dangerous bookies and illegal offshore operators. That will mean less—not more—tax revenue for the state in the long run.”
‘Volatile’ tax rates make doing business tough
The decision by Illinois lawmakers isn’t a first. Last summer, Ohio Governor Mike DeWine was the architect of doubling that state’s wagering tax. Operators there saw their rate double, from 10% to 20%. New Jersey lawmakers are contemplating an increase — from 13% to 30%. Massachusetts lawmakers earlier this month shot down the idea of hiking taxes from 20% to 51%.
The changing landscape could make it difficult for operators to commit to certain states.
“Operators need to budget when they enter a state,” Brian Wyman of Innovation told iGB. “For the state to go from 15% to 35%, it makes it impossible for operators to pay fair prices to their suppliers, and they can’t pay high licensing fees. If the rules of the game are so volatile and everyone is waiting for the ‘other side’ to do something different, that’s not a good way to do business. You’re going to see a backlash as other states come on.”
Illinois operators have already paid high licensing fees — it cost $10m to get into the state tethered to a casino or pro sports venue.
DraftKings, FanDuel have made capital investments
As budget negotiations were going on in Illinois, it was reported that DraftKings and FanDuel might have to reconsider their presence in the state. Dating to 2019, when sports betting was legalised, it has seemed as if Illinois didn’t want them. The law includes three $20m stand-alone mobile licenses intended, it seemed, for companies with no retail footprint. Owners of those licenses would have had to wait 18 months to launch, while those tethered to casinos were able to launch sooner.
At the time, neither DraftKings nor FanDuel was much in the brick-and-mortar sportsbook business. But both partnered and invested in existing businesses in order to launch sooner. Five years later, there is a DraftKings-branded sportsbook at Wrigley Field and a FanDuel-branded sportsbook at the United Center. DraftKings also has a retail sportsbook at the downstate Casino Queen, and FanDuel has a physical location at Fairmount Park.
Wyman said it would seem that lawmakers would want to give “preferential treatment” to companies that invest in a state. Illinois is not the first place to at least appear not to do that.
In Maine, when sports betting was legalised, the state’s two casinos were shut out in favour of its four Indian tribes.
‘Prescription to promote, preserve’ black market
A bigger concern, as pointed out by the SBA, is whether or not the decision to raise taxes will ultimately create an opening for the black market. Operators have long contended that restricting betting markets or limiting choices sends bettors looking for better deals.
To that end, raising taxes to the point where operators cut back on promotions, increase odds, or do anything that could cause a consumer to seek another option is perceived as negative by the industry.
“Increasing tax rates at a time when market entrants are directly competing with illegal offshore sites is merely a prescription to promote and preserve that still-present illegal market,” American Gaming Association SVP for government relations Chris Cylke said via e-mail.
“As regulations evolve and policymakers consider changes, it is crucial they continue to design and promote regulated markets that emphasize continued innovation and competition that build on the industry’s momentum in migrating bettors out of the illegal market and into the legal market, not jeopardise that progress.”
Original article: https://igamingbusiness.com/sports-betting/illinois-proposed-high-wagering-tax-backfire/
