The decision by DraftKings and FanDuel to balance out a new per-wager tax in Illinois with a 50-cents per-wager surcharge of their own could result in a net gain for both companies, Jefferies analysts wrote in a note Friday. Illinois lawmakers pushed through a last-minute first-of-its-kind tax in their budget May 31, but Gov. JB Pritzker has not signed the budget yet.
The proposal would tax the first 20 million wagers placed with a digital sports betting platform at 25 cents, and all above 20 million at 50 cents. The new tax would be the same whether a bet is for $1 or $100, meaning that for smaller bettors, the tax could potentially be 25% or 50% of the actual wager. First FanDuel, and then DraftKings, pushed back, announcing last week that they would impose a flat 50-cent surcharge to bettors in Illinois on each wager. This means that a $1 bet will now cost the bettor $1.50 or a $100 bet will cost $100.50.
“Interestingly, given the structure of the transaction fee and the tax, FLUT and DKNG could see an additional $5M in net revenue, given the first 20M bets placed would be taxed at $0.25 each, though the companies would receive the $0.50 transaction fee,” the Jefferies analysts wrote. “We believe that this additional revenue would fall to EBITDA at nearly 100%, given that there are no incremental expenses associated with the move. “
Operators: Bettors may be pushed out of state
On the downside, the analysts wrote, handle could drop in Illinois, as bettors balk at paying more for the same bet. It’s possible that bettors seeking a better deal would then cross state lines to bet in Indiana, Iowa, Kentucky, or Missouri, where wagering goes live Dec. 1.
Tax rates in those states range from 6.75%-14.25% for mobile betting, making them cheaper to do business in than Illinois. The decision in Illinois is projected to make the state’s effective tax rate on DraftKings and FanDuel higher than New York’s 51%. Last year, Illinois lawmakers replaced the 15% flat tax for sports betting with a progressive tax (20%-40%).
A lobbyist for the Sports Betting Alliance (SBA) also pointed to the possibility that consumers will now go offshore.
The SBA is comprised of BetMGM, DraftKings, Fanatics Sportsbook, FanDuel, and bet365.
“With this change, lawmakers are essentially urging customers — and especially these small dollar bettors — to switch to unsafe and unregulated sportsbooks who defy state consumer protections and generate zero taxes for state priorities,” an SBA representative wrote in an email to InGame. “These illegal operators are the big winners [from the per-wager tax].”
The companies would start their surcharges Sept. 1, which is about when DraftKings and FanDuel are expected to cross the 20-million wager mark for the current fiscal year. If Pritzker signs the budget with the increase in it, the new tax will go into effect July 1.
Both companies said they will not impose a surcharge if the new tax is not approved.
So far, no other Illinois operators have announced new policies related to the new tax. But DraftKings and FanDuel are currently the only two operators to cross the 20-million mark in wagers taken in the state. FanDuel would face a $59.8 million tax bill from the transaction fee alone, while DraftKings would owe $52.5 million, according to an analysis of FY 2025 by InGame. Third-place BetMGM’s projected hit would be just $3.2 million.
Tax rates trending up across US
Illinois is not the only state to have raised sports betting taxes since launching its market — though it is the most egregious. In 2023, six months after wagering went live, Ohio lawmakers doubled the tax there from 10% to 20%. And this year, Maryland lawmakers approved a 5% increase. A similar increase — 6.25% — has passed through the Louisiana legislature and is awaiting approval by Gov. Jeff Landry.
Despite that, Jefferies’ analysts wrote that they do not view Illinois as a trend-setter.
“We concede that other states have and could increase the tax rates over time, as LA did recently by 650 bps in line with its land-based sports betting rates, but the largest and most aggressive increases should be from IL,” they wrote. “Bottom line is that we do not believe IL increases the likelihood or magnitude of increases elsewhere.”
BetMGM ups guidance for FY 2025
Entain, co-owner of BetMGM, Monday released an investor note saying that due to “positive momentum” in the first half of FY 2025, it is raising its guidance for net revenue and EBITDA. In the second quarter, Entain wrote, “Trading for the period is broadly consistent with +34% YoY Net Revenue growth delivered in 1Q 2025.”
Because of that, the company is now projecting net revenue to be “at least” $2.6 billion. The company previously projected $2.4-$2.5 billion. In addition, Entain said EBITDA is “now expected to be at least $100 million” as compared to previous estimates of “positive” EBITDA. BetMGM reported EBITDA of negative $244 million for FY 2024.
“BetMGM remains excited about the significant opportunities ahead,” according to the update. “Its strengthened business, revised strategic approach, and performance momentum further reinforce its confidence in future growth prospects and pathway to $500 million EBITDA in the coming years.”
BetMGM is a joint venture between Entain and MGM Resorts.
