By Mackenzie Tatananni

Smaller players in the gambling industry have an opportunity to snap up market share as DraftKings and other behemoths respond to a new tax in Illinois.

In accordance with a new state budget approved on May 31, licensed sportsbooks will be required to pay a 25-cent tax for each of the first 20 million wagers they accept each year, plus a 50-cent tax on every additional bet. That comes in addition to the current 0.25% excise tax at the federal level, which was enacted in 1951.

DraftKings won't go quietly. In a statement Friday, the company slammed Illinois lawmakers for deciding to "more than triple our tax rate over the past two years."

The company said it plans to implement a 50-cent transaction fee on all bets placed through its sportsbook in the state. The fee will apply to all mobile and online wagers, effective September 1.

The decision came on the heels of a similar move by FanDuel, a rival online gambling company owned by Flutter Entertainment. It opted to impose a 50-cent surcharge on Illinois bets earlier this week.

Shares of DraftKings fell 1.8% to $37.17 following the announcement. Flutter Entertainment traveled with them, declining 1.2%. The S&P 500 and Nasdaq Composite were down 0.7% and 0.9%, respectively.

Benchmark Equity Research analyst Mike Hickey said it was the first time either operator had directly passed state-level tax increases to consumers.

"We think the intent is to land a message with Illinois and signal to other states that continued tax hikes risk destabilizing the legal market," Hickey wrote. "The company is balancing that message with efforts to mitigate margin pressure and remain competitive."

He said he believes the new Illinois per-wager tax structure imposes "a substantial incremental burden on high volume operators." Under the revised framework, DraftKings could be subject to an estimated tax increase of $70 million per year.

It could also create an opportunity for smaller operators like Rush Street Interactive. DraftKings and FanDuel command the majority of the Illinois market, so the transaction fee "disproportionately impacts them, " Hickey wrote. Smaller competitors could capture market share if they absorb the tax and choose not to implement similar fees.

In the most extreme scenario, gamblers may turn to black-market betting. Hickey wrote that high taxes in the legal market "are widely known to funnel activity into unregulated betting." Driving bettors to unregulated, offshore platforms would also erode state revenue, he said.

DraftKings CEO Jason Robins made a similar argument, saying that lawmakers had jeopardized the regulated betting industry.

"We are very concerned," Robins said. "Illinois continues to fuel the rapidly growing illegal industry, which pays no taxes or fees and provides none of the consumer protections that regulated operators offer."

In short, all bets are off.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 13, 2025 13:41 ET (17:41 GMT)

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