Legalizing online sports betting in states that don’t have it would raise more than $1.6 billion in tax revenue across the U.S. — including $569.5 million in California — according to a study released by the Tax Foundation Jan. 22. The non-partisan research organization also projects that gross gaming revenue (GGR) would more than double to $15.6 billion per year.
In its analysis, the Tax Foundation considered the 20 states that do not have open, competitive legal online sports betting, and applied a 10% tax rate. Critical to the analysis is the Tax Foundation’s argument that “non-exorbitant” tax rates are key to moving illegal wagering onshore. The study authors include Florida in its analysis, as the Seminole Tribe has a monopoly on gambling, and an open, competitive market could net more revenue of all kinds.
“As more states consider legalization, the stakes are high: California, Texas, and Florida alone could add billions in new tax revenue,” study authors Adam Hoffer and Jacob Macumber-Rosin wrote. “Yet the future of sports betting will depend on how policymakers structure tax regimes, regulate access, and ensure that legal markets remain competitive with illicit alternatives.”
Unsurprisingly, California is projected to yield the biggest tax take from a newly legal market, followed by Texas ($362.1 million in annual tax revenue) and Florida ($198.5 million in annual tax revenue). The Tax Foundation projects that only two other states — Georgia and Washington — would bring in more than $50 million in annual tax revenue. The analysis estimates Georgia tax revenue at $89.3 million and Washington at $79.8 million.
It’s unlikely that lawmakers in any of those states will legalize in 2026. California’s tribes have exclusivity for Class III gaming and are aiming for a 2028 ballot initiative to legalize, the Texas legislature is not in session, Georgia lawmakers still have not reached a consensus on legalization, and Washington’s tribes are already moving bills to tweak in-person betting but do not have designs on online legalization this year.
Reasonable tax structure, rate imperative
While it’s no surprise that more legal states will mean more revenue for operators and more tax dollars to U.S. jurisdictions, Hoffer and Macumber-Rosin are clear that a solid tax design and a reasonable tax rate are critical. In states with unusual or overly aggressive tax rates, volume and sometimes handle and revenue are lower than in states with smart tax design.
The most recent example of a state that may have gone too far in its tax structure is Illinois. Lawmakers there changed the 15% flat tax on GGR to a sliding scale of between 20%-40% in 2024, and then in 2025 added a first-of-its kind per-wager tax of either 25 cents or 50 cents, depending on volume of wagers. The biggest operators — DraftKings and FanDuel — are hurt the most by this, and led operators in announcing that they would pass that surcharge onto consumers. Other operators set bet minimums.
Then, beginning Jan. 1, a new city of Chicago tax of 10.25% on GGR for bets made in the city limits went into effect. In the span of two years, Chicago operators went from paying that flat 15% to, in some cases, more than 50%.
The latest Illinois Gaming Board revenue report shows that wagering volume continues to decline. Handle was up in November, but the number of people playing was down.
On the flip side, the Tax Foundation study points out, is significant growth in the Washington, D.C. market, which had a single, white-label online sports betting platform (GamBetDC) run by the lottery that consistently underperformed. The jurisdiction, the authors wrote, “provides a great case study of the costs of relying on a monopolized sports betting market.”
In April 2024, FanDuel took over for a three-month stint as the only provider, and handle and revenue shot up. In July 2024, the market opened, and in that month, handle was $27.3 million compared to $7.7 million in July 2023. In terms of taxes, the city collected $1.3 million in July 2024 as compared to $363,715 in July 2023. In D.C., the numbers have continued to improve and the jurisdiction is now on par in terms of handle, GGR, and tax revenue with other jurisdictions its size. The tax rate was 10% in both scenarios.
The Tax Foundation study authors also point out that how promotions are handled (deductible or not) and other factors can influence tax revenue. Allowing deductions is attractive to operators, but decreases the amount of taxable revenue.
“The legalization of sports betting has reshaped the American gaming landscape in less than a decade, transforming what was once a niche pastime into a multibillion-dollar industry,” Hoffer and Macumber-Rosin wrote. “States have embraced sports wagering not only as a source of entertainment for consumers but also as a reliable stream of tax revenue, with policy design playing a critical role in establishing a sustainable marketplace.”
How the Tax Foundation got there
Projecting tax revenue — or how much will be bet on the Super Bowl, for that matter — isn’t a perfect science. Tax Foundation study authors relied on existing data from the 30 states where online sports betting is legal. From there, they worked with a 10% tax rate, and an 18-to-44-year-old demographic. The group also removed Nevada from the equation, because it is a “gambling destination, and our goal is to estimate own-state gambling totals.”
For 2025, Nevada had the highest average annual spend per bettor at $427. The next closest was New Jersey at $323. The average annual spend was more than $300 per player in Louisiana, Maryland, New Jersey, and New York, and the average across all states except Nevada was $229.
Study authors also worked the “state median income, the percentage of the population living in rural areas, and the number of major professional and collegiate teams” into their projections. The projections are for average GGR and taxes four years into legalization.
