Illinois has recently implemented a graduated tax scheme for online sportsbook companies, resulting in significantly higher taxes for the largest revenue-generating operators compared to their smaller counterparts. Effective July 1, this tax hike has raised concerns that other financially strained states might follow Illinois’ lead and increase taxes on iGaming and sports wagering to meet budgetary needs. However, one analyst suggests that while tax hikes in other states are possible, the Illinois model is unlikely to be widely adopted.

In a new report, Stifel analyst Jeffrey Stantial highlighted that gaming companies might cope with higher taxes by cutting marketing and promotional expenditures, though this has made investors wary, as evidenced by recent declines in the stock prices of DraftKings (NASDAQ: DKNG) and FanDuel parent Flutter Entertainment (NYSE: FLUT).

Under Illinois’ new tax scheme, FanDuel and DraftKings, the two largest online sportsbook operators in the US, will see their tax rates jump to 37% and 36%, respectively, from the current 15%.

The Great, Awful, and Revolting of Sports Wagering Charge Outlook

Some investors worry that other states might emulate Illinois. However, a significant sports wagering tax hike proposed in Massachusetts did not progress, and New Jersey’s recent budget proposal did not include a sports betting tax increase. These developments have temporarily eased fears of widespread tax hikes.

Currently, Delaware, New Hampshire, New York, and Rhode Island impose a 51% tax on sports betting, with Pennsylvania and Illinois following closely. On a positive note, higher sports betting taxes might prompt some states to approve online casinos, potentially increasing the number of states with legal iCasinos from the current six.

How Administrators Can Oversee Higher Sports Wagering Charges

Operators in Illinois are likely to respond to the higher taxes by reducing promotional spending. Stantial noted that in a base case scenario, 70% of the profit loss from a theoretical 10% tax increase in any state could be offset by cutting promo expenditures.

Looking ahead, the potential for other states to increase sports betting taxes remains, though the list is short and includes prominent jurisdictions.

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