Illinois per-wager tax: Billions wiped off Wall St; understanding financial fallout
The state of Illinois has enacted a significant and novel tax on sports wagering, marking a pivotal shift in the regulatory landscape for online betting operators. As part of its fiscal year 2026 budget, approved by the legislature and set to be signed by Governor J.B. Pritzker, Illinois will introduce a per-wager tax taking effect on 1 July 2025. This new levy imposes a charge of 25 cents on each of the first 20 million wagers accepted by an operator during the fiscal year, escalating to 50 cents per wager for any volume exceeding 20 million. State officials anticipate this measure will generate over $36 million in annual revenue for Illinois’ General Revenue Fund.
The announcement of this new tax triggered an immediate and pronounced negative reaction in the financial markets, resulting a decline of nearly $3 billion in combined market capitalisation. Shares of major online sports betting platforms experienced significant declines on Monday, 2 June 2025. DraftKings (DKNG) stock, for instance, plummeted over 6 percent, while Flutter Entertainment (FLUT), the parent company of FanDuel, saw its shares drop nearly 3 percent. Other prominent operators, including MGM Resorts (BetMGM) and Penn Entertainment (ESPN Bet), also registered declines, reflecting widespread investor apprehension across the sector.
Detailed explanation of FY2026 tax structure
The newly adopted Illinois state budget, worth $55 billion, includes $800 million in fresh tax hikes, of which a significant part comes from sports betting. Governor J.B. Pritzker publicly pledged to sign the bill, which goes into effect 1 July 2025. The foundation of this new financial policy is a per-wager tax, a system that differs from earlier styles of taxation. Specifically, operators will pay 25 cents per bet up to their first 20 million wagers in a fiscal year. After this 20 million benchmark, the rate doubles to 50 cents per bet. This framework is estimated to generate more than $36 million each year for the state’s General Revenue Fund.
This new tax is a paradigm shift in taxation from revenue-based to volume-based. Traditionally, sports betting taxes have been charged on Adjusted Gross Revenue (AGR), a share of the profit of the operator after paying out winnings. This kind of system ties the revenue generation for the state to the profitability of the operator; if an operator has a less profitable month, its tax output will accordingly reduce. Conversely, a per-wager tax charges a flat fee per wager regardless of the size or result of the bet. This flat fee takes effect squarely in the profit margin, especially on low-stakes bets. An illustration is a 50-cent tax on a $1 bet, where 50 percent of the face value of the bet is consumed by tax even before considering possible payouts or operational costs. This forces operators to essentially rethink their whole pricing and promotion strategy, as bets of small dollars can be economically unsustainable.
Evolution from previous Illinois tax regimes
The approval of this per-wager tax marks the second consecutive year that Illinois lawmakers have increased taxes on regulated sportsbooks. In the preceding fiscal year, Illinois transitioned its sports betting tax structure from a flat 15 percent rate to a progressive tiered system, ranging from 20 percent to 40 percent based on adjusted gross revenue. This progressive framework already guaranteed that more substantial sportsbooks, producing greater revenues, bore a larger tax load.
The sequence of constant and increasingly frequent tax increases, habitually presented as “surprises” or afterthoughts appended to the budget, indicates a state approach of balancing its budget in the thriving sports betting sector. This is an atmosphere of enormous regulatory uncertainty. For companies, stability in the regulatory environment is essential for long-term investment and planning. Two years of surprise and sizeable tax hikes send a message to operators and investors that Illinois is a volatile marketplace in which rules can shift suddenly. This increased uncertainty enhances the perceived risk of doing business in the state, perhaps discouraging future investment and innovation, and may prompt operators to shift resources to more stable jurisdictions.
Comparison with tax rates in other major US sports betting states
Illinois’ new per-wager tax, combined with its existing progressive AGR tax structure (which can reach up to 40 percent), positions it among the highest-taxed states for sports betting in the nation. For context, tax rates vary significantly across other U.S. states. New Hampshire, New York, and Rhode Island impose a 51 percent tax on gross gaming revenues, while states like Nevada and Iowa maintain rates as low as 6.75 percent. More recently, Maryland increased its sports betting tax by 5 percentage points, and Ohio introduced a 2 percent handle tax in addition to its existing 20 percent revenue tax.
Analysts at Bank of America estimate that the effective tax rate for companies operating in Illinois will now exceed 50 percent, a substantial increase from the approximately 35 percent effective rate previously observed. While New York’s 51 percent tax is levied solely on gross gaming revenue, Illinois’ unique combination of a high progressive AGR tax and a per-wager tax means that its effective tax burden for market leaders could be comparable to, or even higher than, New York’s, particularly for high-volume, low-value bets. This dual approach makes Illinois an outlier in its taxing methodology and the overall financial burden it places on operators. The calculation of an “effective tax rate” exceeding 50 percent is critical because it aggregates the impact of both the progressive AGR tax and the new per-wager tax, demonstrating that Illinois is not merely adjusting a specific tax but is effectively making its market one of the most expensive for operators. The calculation of an “effective tax rate” exceeding 50 percent is critical because it aggregates the impact of both the progressive AGR tax and the new per-wager tax, demonstrating that Illinois is not merely adjusting a specific tax but is effectively making its market one of the most expensive for operators. This immediately affects operators’ ability to provide competitive odds, appealing promotions, and overall customer value, which could influence market growth and retention within the legitimate environment.
Analysis of stock performance
Following the approval of the new tax, shares of prominent online sports betting platforms experienced immediate declines on Monday, 2 June 2025. DraftKings (DKNG) stock closed down 6 percent, with some reports indicating a dip of over 5 percent during trading. Flutter Entertainment (FLUT), the parent company of FanDuel, saw its shares fall between 2.8 percent and 3.6 percent. While Flutter’s decline was less drastic than DraftKings’, it is important to note that Flutter’s operations are considerably more diversified outside the U.S. market. The shares of Rush Street Interactive (RSI), which operates BetRivers, also fell close to 2.7 percent. The broader market reaction was reflected in the , which tracks the performance of companies in the sector, dropping between 1.3 percent and nearly 2 percent. Other affected companies included MGM Resorts, whose BetMGM platform saw its shares decline almost 2 percent, and Penn Entertainment, partners in the ESPN Bet platform, which fell as much as 1.6 percent.
The widespread stock declines across major and mid-tier operators, as well as the industry-specific ETF, convey that the market perceives this tax as more than an isolated issue for Illinois; it is viewed as a systemic risk to the overall profitability and regulatory stability of the U.S. sports betting industry. Investors are evidently factoring in the potential for this “dangerous precedent” to be replicated by other states. This indicates a broader re-evaluation of the investment thesis for the entire regulated sports betting market in the U.S., highlighting growing concerns about future regulatory environments across the nation.
Quantified financial burden: Estimated annual tax impact
The new tax is projected to impose tens of millions of dollars in additional costs annually on high-volume operators. Estimates from various brokerage firms indicates a major financial hit:
- JMP Securities projects a gross tax impact of $86 million for FanDuel and $79 million for DraftKings, based on trailing 12-month data. This totals a combined negative tax impact of $165 million for these two leading operators.
- Truist analyst Barry Jonas estimated the added cost at $77 million annually for FanDuel and $68 million for DraftKings.
- Citi estimated that DraftKings alone would have faced approximately $68 million in additional taxes based on its performance in the previous year.
These figures are particularly striking when compared to the tax payments made by these companies in Illinois under the previous structure. In 2024, FanDuel paid $74 million and DraftKings paid $67.9 million in total Illinois taxes. The new per-wager tax alone could nearly double their previous total tax burden. The sheer size of this estimated tax effect on DraftKings and FanDuel ($165 million combined) compared to their prior tax payments ($141.9 million combined) proves this is no minor adjustment but a fundamental financial hit that will drastically change their profitability within Illinois. When the new tax alone is estimated to be greater than what these firms collectively paid under the old regime, it reflects a radical increase in their cost of operations for the Illinois market. This will have a direct bearing on their net profits and cash flow from the state, necessitating a fundamental rethink of their strategic response to operations in Illinois.
Impact on Adjusted EBITDA and overall profitability
The financial impact of the new tax extends directly to operators’ profitability metrics, particularly Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation).
For fiscal year 2026, JMP Securities estimates that the gross tax impact will represent 5.4 percent of DraftKings’ projected EBITDA.
Truist analyst Barry Jonas estimated the added cost for FanDuel and DraftKings to be roughly 3.5 percent to 4 percent of each company’s projected full-year U.S. EBITDA.
Jefferies projected a low to mid-single-digit reduction in adjusted EBITDA for fiscal year 2025 due to the tax.
A multi-percentage-point reduction in projected EBITDA, particularly for market leaders, represents a major financial blow that directly impacts valuation multiples and investor confidence. Jefferies highlighted that this specific per-wager tax is “harder to offset than traditional gross gaming revenue taxes“. This difficulty in mitigation compounds the challenge. EBITDA is a crucial profitability metric for growth companies like DraftKings. A direct hit of 3.5-5.4 percent to projected EBITDA means less cash flow available for reinvestment, marketing, or achieving overall profitability goals. The “harder to offset” nature of the per-wager tax means operators cannot simply adjust their “hold” percentage (the percentage of wagers kept by the sportsbook) as easily as they might with GGR taxes. Instead, this tax structure necessitates more fundamental changes to their business model or a direct passing of costs to consumers.
Assessment of impact on mid-tier operators
While DraftKings and FanDuel are expected to bear the brunt of the new tax hike, the impact on the state’s other eight sports betting operators is projected to be comparatively marginal. JMP Securities estimates that these remaining eight companies will collectively face a levy of around $20 million. For these smaller operators, the impact on their projected EBITDA is estimated to be less than 0.5 percent, according to JMP. Truist analyst Barry Jonas similarly noted that the impact for smaller competitors in the market would be more “modest“.
This disproportionate impact on market leaders (DraftKings and FanDuel) versus mid-tier operators (such as Caesars, BetMGM, ESPN Bet, and Fanatics) is a direct consequence of the 20 million wager threshold for the higher 50-cent tax rate. The tax structure is designed with a tiered mechanism that heavily favours operators with lower wager volumes. Since DraftKings and FanDuel each process over 150 million bets annually in Illinois, they will rapidly surpass the 20 million threshold and incur the higher 50-cent tax on the vast majority of their wagers. Conversely, smaller operators, with volumes below or just above this threshold, will pay much less per wager on average, thereby creating a competitive imbalance where market success is effectively penalised.
In-depth review of the Jefferies report’s findings
Brokerage firm Jefferies has given a negative outlook for sports betting operators in Illinois following the implementation of the new tax. The firm estimates that this new tax could lead to a in adjusted EBITDA for fiscal year 2025. Jefferies also pointed out that this specific per-wager tax structure is “harder to offset than traditional gross gaming revenue taxes”. This assessment indicates a unique operational challenge for operators.
Traditional Gross Gaming Revenue (GGR) taxes are based on the revenue an operator retains after paying out winnings. Operators can manage this by adjusting odds or payout percentages to some extent. However, a per-wager tax is a fixed cost incurred on every single transaction. For example, if a bet is placed for $1 and the tax is $0.50, the operator has effectively lost half the wager’s value to tax before any other costs or potential payouts are even considered. This compels a root-and-branch review of the viability of small-dollar stakes and creates a motivation for operators to push for higher bets or substantially curtail promotional activity, which directly affects the customer experience and overall appeal of the legal betting product. According to Jefferies, in order to preserve their margin, companies such as DraftKings would have to become increasingly innovative.
Contradictions and divergent views
While there is broad agreement on the immediate negative financial impact, a notable divergence in perspective exists regarding the potential for other states to adopt similar tax measures. Most analysts and industry bodies express concern that the Illinois tax could set a “dangerous precedent” for other states seeking to bolster their revenues. This view suggests a systemic risk to the industry, where a wave of similar per-wager taxes could fundamentally reshape the national sports betting landscape.
Conversely, Jefferies is more optimistic, stating that it does not believe other states will copy identical tax policy. The firm points to New Jersey as a model success story in terms of even levels of taxes and ongoing expansion in betting activity as well as tax revenues, where it implies that other states can pick up lessons from superior regulatory regimes. This Jefferies contradiction is a make-or-break point for investors and stakeholders within the industry since it creates two drastically opposing visions of the future for the U.S. sports betting landscape. If Jefferies is correct, Illinois’ drastic tax increase could be an isolated incident. But if other analysts’ and the industry’s overall assessment of the situation is correct, operators might be confronted with a substantially larger, multi-state threat, fundamentally changing the economics of the regulated U.S. sports betting market.
