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FanDuel & DraftKings Reevaluating Illinois Market After Tax Hike

Chicago skyline Illinois
Buildings on the skyline are seen on January 17, 2024 in Chicago, Illinois. View is from the south of the city looking north. Win McNamee/Getty Images/AFP

As of July 1, 2024, a new sliding tax scale will go into effect on Illinois’ mobile sportsbooks, and the two industry leaders, FanDuel and DraftKings, will be the most adversely impacted causing their executives to contemplate their future in the Land of Lincoln.

The Taxman Cometh

American playwright Eugene O’Neill’s seminal literary work, The Iceman Cometh, is an iconic work that uses the “iceman” as a metaphor for death. And if you listen to the C-suite executives at FanDuel and DraftKings, the looming rate hike being imposed in Illinois by the taxman could spell the end of operations for those companies in that highly lucrative market.

The Sports Betting Alliance, whose members include top-rated sportsbooks like FanDuel, DraftKings, BetMGM, and Fanatics Betting & Gaming, is the industry mouthpiece for not only these four platforms but for the entire industry as well. Once Illinois Governor JB Pritzker signed the tax bill into law earlier this month the reaction was both swift and predictable.

“This tax hike doesn’t just threaten the legal, regulated sports betting market – it will have devastating effects for operators’ in-state partners, including the most vulnerable downstate casinos, who rely on sports betting revenue to create jobs and invest in communities,” SBA president Jeremy Kudon said on X.

The news sent shudders through both companies’ stock prices as evidenced by DraftKings plummeting 12% while FanDuel’s parent company, Flutter, saw its price drop 3.7%. Kudon went on to state that higher taxes will “counterproductively penalize sports betting operators who invested millions into the local economy and created jobs in the state” — and will leave operators “no choice but to” reconsider their Illinois operations.

Bluff Called

Illinois sports betting tax will rise from a standard 15% to a sliding scale that will impact the following tier levels of operators in the state predicated on their revenues. Even the smallest sportsbooks with adjusted gross revenues (AGR) of $30 million or less will see an increase to 20%, which will rise at intervals of operators doing $30-50 million to 25%, $50-100 million to 30%, $100-200 million to 35%, and lastly, the Big Two – FanDuel and DraftKings, will now pay 40% on their respective adjusted gross incomes.

Although the major players are balking at the increase and threatening to leave the market due to the 25% increase on their AGR, it is highly unlikely neither will abandon a market that has already made them nearly $250 million thus far under the current tax rate.

Victor Matheson, an economics professor at the College of the Holy Cross in Worcester, Massachusetts, believes the threat is merely a bluff. “It’s a completely non-credible threat. Of course, they don’t want to pay higher rates, but there’s no evidence they can’t pay. At the end of the day, they’ve made hundreds of millions of dollars selling a wildly addictive product, and the government should tax that,” opined Matheson.

Matheson also added, “A lot of states, in the rush to add sports gambling, have way, way undertaxed it. And the companies are still making out just fine in New York. It’s only reasonable to ask for more from an industry to mitigate the harm of addiction that comes with it.”

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