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The Illinois sports betting tax increase hits FanDuel and DraftKings hard under the Pritzker budget

Illinois lawmakers have called the bluff of online sports betting companies suggesting they could reduce operations — or close up shop in the state altogether — after being hit with a higher tax bill in Gov. J.B. Pritzker’s last budget.

FanDuel and DraftKings will soon see their net income taxed at a scale that tops out at 40% under the spending plan passed by the Illinois General Assembly last week. That’s more than the flat 15% rate levied on sportsbooks since the now $1 billion Illinois industry launched in 2020.

The two biggest mobile gambling giants – which raked in more than $729 million from Illinois gamblers last year and have come out on top with nearly a quarter of a billion so far this year – say the increase is enough to let them “restore their investment levels.” to be evaluated”. and participation in the state.”

But Pritzker says it’s a matter of paying “their fair share” — and experts advise against betting on any of the major gambling companies that actually give up their bets in Illinois.

“If I were governor, I would say, ‘It would be a shame to see you leave. 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’s a completely non-credible threat. Obviously they don’t want to pay higher rates, but there’s no evidence they can’t. Ultimately, they made hundreds of millions of dollars selling a hugely addictive product, and the government should tax it,” Matheson said.

An army of lobbyists for DraftKings, FanDuel and other major oddsmakers — all working together as the Sports Betting Alliance — made the walk a difficult proposition for lawmakers in the hectic waning days of the spring legislative session in Springfield.

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

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

Blackhawks announcer Eddie Olczyk makes Illinois' first sportsbook bet, putting down $100 on his hometown White Sox to win the American League pennant at 16-to-1 odds at BetRivers Sportsbook at Rivers Casino in Des Plaines, Monday morning, 9 March 2020.

Blackhawks announcer Eddie Olczyk makes Illinois’ first sportsbook bet, putting down $100 on his hometown White Sox to win the American League pennant at 16-to-1 odds at BetRivers Sportsbook at Rivers Casino in Des Plaines, Monday morning, 9 March 2020.

“That’s a tax structure that’s difficult for any industry, let alone an upstart industry,” said state Rep. Curtis Tarver, D-Chicago, who ultimately voted in favor of the budget bill that landed on a graduated tax system for sports betting, similar to the one that Illinois casinos pay.

The tiered system put in place by Pritzker’s budget team charges sportsbooks 20% of revenue after paying winners up to $30 million, 25% of revenue up to $50 million, 30% of revenue up to $100 million, 35% of sales to $200. million and 40% of everything beyond that.

That leaves FanDuel and DraftKings the hardest hit, as the only sportsbooks among Illinois’ 13 roster to raise 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 tiered system, FanDuel would have paid the state about $145 million, while DraftKings would have been on the hook for $109 million.

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

Jeremy Kudon, president of the Sports Betting Alliance, said the new rates “counterproductively penalize sports bettors who have invested millions in the local economy and created jobs in the state” – and that it leaves them “no choice but to” to reconsider their activities in Illinois.

“This tax increase not only threatens the legal, regulated sports betting market – it will have devastating consequences for the state’s partners, including the state’s most vulnerable casinos, who rely on sports betting revenue to create jobs and invest in communities. Kudon said.

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

“Government. Pritzker believes Illinois businesses should pay their fair share. Thanks to these adjustments, which align the state with markets of similar size, that will now happen,” a spokesperson for Pritkzer said in an email.

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

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

“Many states, in the rush to add sports gambling, have significantly undertaxed it. And the companies are still doing great in New York,” he said. “It is only fair to ask more of an industry to reduce the harms caused by addiction.”