Sports-Betting Stocks Drop as Illinois Senate Passes Budget Raising Tax Scale

Key Takeaways

  • Shares of sports-betting companies like DraftKings and FanDuel parent Flutter Entertainment are falling Tuesday.
  • Markets are reacting to a state budget passed by the Illinois Senate Sunday night, which included a new progressive tax rate up to 40% on sports-betting companies.
  • DraftKings, FanDuel, and other sports-betting companies have said higher tax rates will lead to worse odds and fewer promotions for customers.

Sports-betting stocks like DraftKings (DKNG) and FanDuel parent Flutter Entertainment (FLUT) are sliding Tuesday following the Illinois Senate passage of a new state budget that includes a new progressive tax rate on such firms.

The bill was passed late Sunday night, per the Chicago Sun-Times, and with markets closed for Memorial Day, Tuesday was the first chance for investors to react to the news. The tax was passed as an amendment to HB4951, which the Senate approved Sunday night, and the state House will likely vote on when its session resumes Tuesday.

New Budget Introduces New Tax Scale for Sports-Betting Companies

Under the new proposal, sports-betting companies would be hit with a progressive tax rate from 20% to 40%, depending on the dollar amount of bets they handle, which would affect the largest players like DraftKings and FanDuel the most. Sports-betting companies have paid a 15% tax since it became legal in 2021.

The betting companies have not commented publicly on the legislation, but the website for the Sports Betting Alliance, which represents DraftKings, FanDuel, BetMGM (MGM), and Fanatics Sportsbook has a “No Tax Hike Illinois” banner advertising its arguments against raising the tax rate and urging Illinois residents to contact their legislators.

In conversations with Illinois legislators, sports-betting lobbyists reportedly floated the idea that the biggest operators like DraftKings and FanDuel could leave Illinois as a result of the tax.

Progressive Scale Would Give Illinois One of Highest Sports-Betting Tax Rates

If the amended bill passes the Illinois House this week and is signed by Gov. J.B. Pritzker, the 40% top end of the scale would give Illinois one of the highest sports-betting taxes in the country, behind just New York, which taxes betting companies at 51%.

However, a number of other states have raised or considered raising taxes in recent months as sports betting has become legal in most states, with revenue for the gaming companies surging as their market continues to expand.

Along with Illinois, states like Ohio and Colorado have considered raising taxes on the gaming companies in recent months, according to The Washington Post.

The sportsbooks have said they are paying their fair share under current tax rates, and have argued that raising taxes would mean they have to offer worse odds and fewer promotions for consumers.

DraftKings shares were down more than 12% as of 11:23 a.m. ET Tuesday to $35.76, their lowest level since mid-January. FanDuel parent Flutter’s stock fell nearly 7% to $190.24 but is still up about 6% this year.

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