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Illinois online gaming operators took a hit this week when Gov. JB Pritzker signed a budget bill that increases the sports betting tax rate.
However, that tax increase could eventually help give those same operators a boost. It could be the first step toward Illinois online casino legalization.
PlayUSA spoke with two key Illinois House lawmakers about the sports betting tax increase and how it could impact online casino efforts.
House Gaming Committee Chairman Dan Didech said he wasn’t crazy about raising taxes, but it was necessary this year to pass a balanced budget.
“I think even with the new tax structure, operators will probably do very well in Illinois,” Didech said. “Not as well as they had been doing, but I think they’ll still run fairly profitable businesses. So I wouldn’t expect them to leave the market.
“And, I don’t know if it’s in the immediate future or more the midterm future, but at some point there will be iGaming in Illinois, and I’m sure they want to participate in that as well.”
Illinois looks to gaming for needed revenue
Needing additional revenue to balance the budget, Illinois turned to the gaming industry.
The state increased the sports betting tax rate from a flat 15% to a graduated rate:
Sports betting operators will now pay:
- 20% tax on the first $30 million of adjusted gross revenue.
- 25% tax on AGR between $30 million and $50 million.
- 30% tax on AGR between $50 million and $100 million.
- 35% tax on AGR between $100 million and $200 million.
- 40% tax on AGR over $200 million.
The increase could raise an additional $170 million to $200 million for the state. FanDuel and DraftKings, the two most successful operators in the state, would bear most of the impact as the only two that would pay more than 40% on part of their revenue.
Illinois also increased the video gaming terminal (VGT) tax rate by 1%, which is projected to net the state an additional $35 million annually.
Rep. Edgar Gonzalez, sponsor of online casino bill HB2239, couldn’t get a hearing for his bill this year. However, he said there was some discussion about online casino once the state started to look for additional revenue from gaming. But Pritzker had asked for the sports betting tax increase and it was an easier lift.
“Early in the session when I asked people if they were willing to discuss online gaming, there was a lot of reticence. But as we got closer to the end of the session, a lot of folks realized we’re going to need money. By May, people were talking about it as a potential revenue source. It didn’t happen because we were able to make up revenues other places.
“But next year is looking like an even tougher budget year and, based on the conversations we had this time around, I think people have not yet fully bought in but are getting closer to accepting iGaming as a potential revenue source. Revenue pressures this year started all these conversations happening, so that’s why I’m hopeful for next year.”
Next Illinois gaming revenue increase will come from expansion
This year’s session showed that when Illinois needs revenue to balance the budget, legislators and the governor will look toward gaming.
Now the state crossed off the option to increase gaming taxes. Didech explained:
“The reason why we adjusted the tax structure this year was essentially budgetary reasons and the reality is that’s a well we’re not going to be able to go back to in the future. So if there’s going to be a desire to increase revenues from gaming in the future, I think we’ve just about exhausted our ability to do that by changing tax rates.”
Legislators already are anticipating needing additional revenue to balance the budget next year and for years to come. Rather than raise taxes on people or businesses, they could again turn to gaming.
With gaming tax increases off the table, that will put the spotlight on expansions, including online casinos.
Putting the sports betting tax rate higher shows legislators that the online casino tax rate will be at least that high as well. Industry projects put Illinois online casino revenue at $500 million to start and $800 million at market maturity.
Didech continued:
“That leaves us with really two other options if the state wants to look at gaming to increase revenues and balance the budget in the future, and that’s to open up the Chicago market to VGTs or authorize iGaming.”
How industry can be ready for iGaming inclusion in budget talks
Gonzalez said to gain legislative support, online casino stakeholders need to educate on responsible gaming components and appease VGTs and labor unions.
“Some folks are more worried about iGaming in terms of responsible gaming than sports betting. Stakeholders have been trying to start having those conversations but need to do even more to talk about the responsible gaming components.”
Gonzalez said some labor unions also joined VGT operators in a note sent to lawmakers opposing iGaming because some of the revenue generated by VGTs is dedicated to infrastructure projects.
“At this point, it’s a war between lobbyists rather than something actually being discussed by legislators.”
Another argument Didech has heard against iGaming is that the state should complete its 2019 gaming expansion before it begins another expansion.
“There are still some casinos that haven’t come online yet and some unused sportsbook licenses that haven’t been issued,” Didech said. “So I think it’s certainly logically that we should finish our last gaming expansion before starting a new one.”
Chicago VGTs may be first on Illinois gaming expansion priorities
With the success of the VGT industry in Illinois and its impact on local small businesses that host the games, VGT operators have more pull in the state legislature than online gaming operators.
Expanding VGTs that already are all over the rest of the state into Chicago is an easier ask than allowing legal casino games on people’s phones.
Didech explained:
“I think a priority in the next steps on gaming is opening up the Chicago market on VGTs. Chicago already has had a committee looking at it, so we’ll monitor what they’re doing. But I think that’s the next logical step, to introduce VGTs into the Chicago market.”
VGT operators can argue that they already took a hit this year with the tax increase. So legislators shouldn’t hit them again with iGaming in 2025. Instead, the state could help them out with the Chicago expansion.
However, revenue needs could dictate the action. And perhaps doing Chicago VGTs together along with online casino could help make the expansions more palatable to both industries, particularly if stakeholders find a way to incorporate VGTs into iCasino.
Gonzalez can see it going either way.
“I could see Chicago VGTs happening before iGaming just because of the influence from lobbyists. But if the state’s needs next year end up as bad as people are talking about them now, that budget hole is going to need both of them.”
