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Shifting winds: Could US tax hikes hit bettors where it hurts?
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Illinois became the first US state to implement a per-bet tax on sports wagering¡ªsparking what may be a critical turning point in the economics of legal sports betting. The new tax scheme took effect on 1 July.
Flutter Entertainment, parent company of FanDuel, was the first to respond, announcing a $0.50 transaction fee on every sports bet placed within the state beginning 1 September 2025. DraftKings quickly followed, mirroring the same surcharge. With both of Illinois’ largest operators now shifting the burden directly onto consumers, industry analysts and legal experts discuss what this could mean for the broader US market in a SiGMA News exclusive.
An end to the quiet absorption era
Until now, major sportsbook operators had largely absorbed rising tax rates across multiple states without directly penalising bettors. But that trend has snapped. ¡°This is a distressingly simple model to copy,¡± longtime Nevada sportsbook director Robert Walker told SiGMA News, referring to Illinois¡¯ per-wager tax structure. ¡°And because of that, other states will almost certainly view it as a viable, if deeply flawed, template.¡±
Illinois has raised its top sports betting tax tier from 15 percent to 40 percent, and now with the per-bet fee, pressure is building on operators’ margins. Many experts argue that this could inspire a wave of similar moves across jurisdictions.
Passing the buck: What $0.50 fee really means
While 50 cents may seem trivial, the impact on small-stakes bettors is significant. ¡°For a $5 casual wager, that¡¯s a 10 percent fee,¡± Walker emphasised. ¡°It punishes the smallest players¡ªironically, the exact demographic every operator covets for their high-margin potential.¡±
This sudden cost burden could reshape how bettors engage with sportsbooks, leading to fewer bets, higher expectations, and migration toward offshore or alternative platforms that offer better value. Walker also warned that passing the fee to bettors was a ¡°critical strategic error.¡±
¡°By immediately adding a surcharge, operators have normalised the idea for other state legislatures, making it easier for them to implement similar tax structures.¡±
– Robert Walker, longtime Nevada sportsbook director
The surge could drive betting volume underground, decrease state revenues, and put further pressure on legal books. Jeff Ifrah, a gaming attorney and founding partner at Ifrah PLLC, told SiGMA News that sportsbooks operate on razor-thin margins and must recoup new costs somehow. ¡°The per-bet fee is a response to increased burdens,¡± he said. ¡°But it¡¯s not ideal. Operators want to offer promotions and competitive odds to draw bettors into the legal market¡ªnot drive them out.¡±
According to Walker, whether or not these fees become an industry norm may depend on how widespread similar taxes become. “DraftKings attempted a similar fee structure previously and was forced to abandon it when FanDuel didn’t follow suit. For this to become an industry norm would require a level of collusion that seems unlikely in such a competitive market.“
Alternative models and innovation pressure
The Illinois case is also triggering discussion around new monetisation models¡ªparticularly peer-to-peer betting and prediction markets, which operate on fundamentally different tax structures. ¡°Peer-to-peer models represent a significant opportunity in states that stick to revenue-based taxes,¡± said Walker. ¡°They thrive on low margins and high volume¡ªexactly what a per-bet tax disincentivises.¡±
Ifrah added that the best long-term solution isn¡¯t to burden existing verticals but to expand into online ë°”ì¹´ë¼ and poker, which can generate substantial tax revenues without disrupting the sports betting ecosystem.
¡°Consumers may look toward illegal, offshore bookmakers. These platforms pay no taxes and offer no protections, but they appear more attractive when legal operators impose fees or worsen odds.¡±
– Jeff Ifrah, Founding & Managing Partner of Ifrah PLLC
Regulated market at risk?
Speaking with SiGMA News, Keith Scott Whyte, founder of Safer Gambling Strategies LLC, warned that shifting costs onto consumers could push high-risk gamblers into unregulated markets, which offer no responsible gambling protections.
¡°These alternative platforms¡ªprediction markets, offshore books¡ªdon¡¯t pay tax, and don¡¯t contribute to public health funding,¡± Whyte said. ¡°If someone develops a gambling problem using those platforms, the cost falls entirely on the public health system.¡± Whyte also highlighted that such tax-driven shifts may indirectly increase gambling harm by encouraging users to migrate to platforms with less oversight, fewer safeguards, and potentially riskier products.
¡°Exorbitant tax rates hurt the entire ecosystem,¡± Walker concluded. ¡°And if we keep escalating costs for the smallest, most vulnerable bettors, we¡¯re accelerating the decline of the legal, regulated market.¡±
As industry leaders noted, Illinois’ new per-bet tax highlights a growing debate over how tax policy impacts both consumers and the regulated sports betting market. As more states look for new revenue streams, they say the Illinois model could influence lawmakers in other high-tax states like New York, Pennsylvania, and Massachusetts. They warn operators passing new costs to bettors may normalise per-bet fees, prompting wider adoption. The coming months will be key in determining whether other states follow suit or explore alternative approaches that balance taxation with market stability.
