Illinois Sports Betting Tax Hike: A Step Towards Online Casino Legalization?

This week, Illinois online gaming operators faced a setback when Governor JB Pritzker signed off on a budget that raises the sports betting tax rate. But this increase might actually pave the way for something bigger: the legalization of online casinos in Illinois.

According to conversations with two key Illinois House lawmakers, the higher sports betting tax could influence future online casino efforts.

Dan Didech, the House Gaming Committee Chairman, acknowledged he wasn’t thrilled about the tax hike, but it was essential to balance the budget this year.

“I think operators will still do well in Illinois despite the new tax structure,” Didech noted. “They may not be making as much as before, but they’ll remain profitable. And sooner or later, Illinois will have online gaming, and these operators will definitely want to be part of that.”

Illinois Turning to Gaming for Revenue

To balance its budget, Illinois is looking towards the gaming industry for extra revenue. The state increased the sports betting tax from a flat 15% to a graduated rate. Now, operators will pay:

• 20% on the first $30 million of adjusted gross revenue (AGR).
• 25% on AGR between $30 million and $50 million.
• 30% on AGR between $50 million and $100 million.
• 35% on AGR between $100 million and $200 million.
• 40% on AGR over $200 million.

This tax hike is expected to generate an additional $170 million to $200 million for the state. FanDuel and DraftKings, being the top operators, will bear the brunt of this increase.

Additionally, Illinois increased the tax on video gaming terminals (VGTs) by 1%, which should bring in another $35 million annually.

The Push for Online Casinos

Rep. Edgar Gonzalez, who sponsored the online casino bill HB2239, wasn’t able to get a hearing for his bill this year. However, he mentioned there was talk about online casinos as a potential revenue source as the session progressed. The focus shifted to the sports betting tax increase because it was an easier sell.

“At the beginning of the session, people were hesitant to discuss online gaming,” Gonzalez said. “But as the budget pressures grew, the conversation started. It didn’t happen this year because we found revenue elsewhere. But with next year looking tough, I think people are getting closer to accepting iGaming as a revenue source.”

Future Revenue Through Expansion

This year’s budget session highlighted that when Illinois needs revenue, gaming is a go-to option. With gaming tax increases now off the table, future revenue might come from expanding the gaming market, including online casinos.

Raising the sports betting tax sets a precedent for a similar or higher tax rate for online casinos. Projections estimate Illinois online casino revenue could start at $500 million and grow to $800 million at market maturity.

Didech stated, “If we need more revenue from gaming, we have two options: open the Chicago market to VGTs or authorize iGaming.”

Preparing for iGaming

Gonzalez emphasized the need for online casino stakeholders to educate lawmakers about responsible gaming and address concerns from VGT operators and labor unions.

“Some are more worried about responsible gaming with iGaming than sports betting,” Gonzalez explained. “Stakeholders need to have more discussions about responsible gaming components.”

He also noted that labor unions and VGT operators sent a note to lawmakers opposing iGaming because VGT revenue supports infrastructure projects.

“It’s more of a lobbyist battle than a legislative discussion at this point,” Gonzalez added.

Didech mentioned that some lawmakers believe the state should finish its 2019 gaming expansion before starting a new one. “There are still casinos that haven’t opened yet and unused sportsbook licenses.”

Chicago VGTs: The Next Step?

Given the success of VGTs in Illinois and their support for local businesses, expanding VGTs into Chicago might be easier than legalizing online casinos.

“I think the next step is introducing VGTs into the Chicago market,” Didech said. “Chicago already has a committee looking into it.”

VGT operators might argue they’ve already taken a hit with the tax increase and should not face another challenge with iGaming in 2025. Instead, expanding into Chicago could be a compromise.

Gonzalez believes both VGT expansion and online casinos could happen together if revenue needs are dire enough. “If next year’s budget is as tough as expected, we might need both expansions to fill the gap.”