Adam Roarty is a journalist covering sports betting, regulation, and industry innovation for CasinoBeats. His coverage includes tax increases in the UK, covering breaking stories in the ever-evolving landscape of US betting such as the...
Read Full BioThe Sports Betting Alliance (SBA), whose members are FanDuel, DraftKings, Fanatics, BetMGM, and bet365, has filed a lawsuit against the city of Chicago over plans to add a city gambling tax.
The group of sportsbooks filed a complaint in Cook County court on Tuesday morning. The complaint alleges that a 10.25% tax on sports wagering, as included in the city’s recent ordinance amendments, is unconstitutional.
The filing highlights Article VII, Section 6(e) of the Illinois Constitution, stating, “a home rule unit such as the City of Chicago may not require a ‘license for revenue’ or ‘impose taxes upon or measured by’ income, earnings, or occupations unless the General Assembly has expressly granted that power to the home rule unit.”
It goes on to note that the General Assembly has not granted that power to Chicago in this case. The City reportedly told online sportsbooks that they must be licensed by January 1 to continue accepting online wagers from customers located in Chicago.
However, it argues that the terms of the recent amendment only require sportsbooks with physical locations to hold licenses. Of the SBA members, only DraftKings operates a physical sportsbook in Chicago – at Wrigley Field. The lawsuit claims the operations there have no relation to DraftKings’ online service and therefore the company should not require a license to offer online betting.
The SBA has requested a temporary restraining order to prevent Chicago from enforcing the license requirements and revenue tax.
Chicago Targets Sportsbooks For Budget Shortfall
Mayor Brandon Johnson included the additional tax in his 2026 budget plan, released in October. Projections estimate the additional city tax could generate $26 million per year for the city, contributing to a budget shortfall of $1.15 billion.
The city’s Financial Future Task Force had suggested adding a betting surcharge of 25 or 50 cents on all wagers placed in Chicago. The task force estimated this tax would have raised between $8.5 million (for a 25-cent surcharge) and $17 million (for a 50-cent surcharge).
Eyeing greater revenue, the city has opted for the 10.25% tax on revenue. The additional tax has divided opinion. Rep. Daniel Didech introduced a bill aimed at blocking the plans shortly after Johnson released the budget.
Didech claims that the legalization of sports betting in Illinois “was never intended to give local governments authority to create their own rules”. The bill has strong support with 27 sponsors, and is due to be debated in the Rules Committee when the new legislative session opens on January 14.
In the meantime, the SBA argues that current laws should be sufficient to prevent Chicago from implementing its own tax rate and licensing requirements.
Illinois Increasing Tax On Gambling
The Chicago tax follows two recent tax increases on sports betting in Illinois. Earlier this year, the state decided to add a betting surcharge of 25 or 50 cents, depending on the size of the operator.
The new betting surcharge followed the state’s increase in the rate in 2024, from a flat 15% tax on revenue to a sliding scale between 20 to 40%. Large operators must pay both the 40% tax on revenue and the $0.50 surcharge for every bet placed.
The SBA strongly opposed the plans, calling the surcharge “discriminatory.” Despite gathering almost 100,000 signatures on a petition calling to abolish the tax, Illinois pressed ahead with the additional tax, which came into force in September.
In response, SBA members passed the cost onto the consumer. FanDuel, DraftKings, and Fanatics all added fees to bets placed in the state, while bet365 added a fee to all bets of less than $10. Unlike the others, bets of over $10 are not subject to the surcharge.
BetMGM, like several other sportsbooks, including Circa Sports and Hard Rock Bet, raised its minimum stake rather than adding a fee. Illinois bettors must now place bets of at least $2.50 at the platform.
SBA Says Taxes Are Driving Users Offshore
The SBA claims the new tax is costing the state, leading to a 15% drop in the number of bets in September this year compared to 2024. Maura Possley, spokesperson for the betting trade body, stated, “It shows that bets plunged in Illinois after the law was put in place and is a red flag that Illinois sports fans are fleeing the legal betting market in favor of the cheaper, illegal market.”
She added, “Overtaxing legal betting will send bettors either outside state lines, city lines, or to the predatory illegal market and have profound negative implications for the legal market and also future tax revenues here.”
Despite the drop in the number of bets, Illinois bettors wagered $1.4 billion, a 9% increase compared to September 2024. However, a low hold contributed to a drop in revenue for sportsbooks from $131 million down to $103 million. The new tax compensated for the decline, meaning the state collected an additional $740,000 overall.
October Sees Record Handle and A Big Increase In Tax Revenue
In October, Illinois set a new record of $1.6 billion in wagers placed, surpassing the previous record of $1.53 billion set in November 2024. Revenue also recovered, increasing to $135 million.
This led to the state generating $41.5 million in tax revenue, with $14.7 million of that coming from the betting surcharge. Overall, tax revenue increased 70% compared to October 2024.
While the SBA strongly opposes tax increases, the figures in October suggest the state’s gamble on the hikes is paying off. Chicago is also looking to cash in, but at some point, the SBA’s warnings that increases will negatively impact the market may prove to be right.
The group hopes that we will not get to see whether the Chicago tax has a negative impact and that the courts block the City from implementing it.
