Online sports betting stocks tumbled Monday following Illinois lawmakers’ approval of a budget that significantly increases taxes on wagers. Questions emerge as to whether it implies a potential domino effect across other cash-strapped states. As state sports betting tax rates become less operator-friendly, prediction market platform Kalshi remains insulated by its status under CFTC regulation.
Illinois sports betting tax hike targets top operators: Stock prices react
Both chambers of Illinois’ legislature passed a budget imposing a 25-cent tax per wager on the first 20 million online sports bets annually, escalating to 50 cents per bet thereafter, according to a report from NBC News. Governor J.B. Pritzker has indicated he will sign the legislation, making Illinois home to one of the nation’s highest sports betting tax rates, according to local news reports.
DraftKings plummeted over 6% to $33.26, while Flutter Entertainment declined more than 2%. The broader Roundhill Sports Betting & iGaming ETF (BETZ) also fell 1.5%.
This marks the second consecutive year Illinois has blindsided the industry with unexpected tax increases, Truist analyst Barry Jonas told CNBC, who called the latest duties a “last-minute surprise.”
Major operators like DraftKings and Flutter’s FanDuel are expected to “certainly” exceed the 20 million wager threshold, subjecting them to the higher tax tier. Smaller competitors may face more “modest” impacts.
Could more sports betting states follow suit?
Other states will likely follow Illinois’ lead because:
- States nationwide are grappling with budget shortfalls and seeking new revenue streams.
- Sports betting, now a multi-billion dollar industry, presents an attractive target for cash-strapped legislators.
- Illinois has demonstrated that the industry will absorb higher taxes rather than exit markets, emboldening other states to pursue similar strategies.
- Unlike traditional tax increases on constituents, sports betting taxes face minimal voter backlash, making them politically palatable.
- With tax rates already varying wildly, there’s established precedent for aggressive taxation.
Kalshi insulated with different framework
While traditional sportsbooks face mounting tax pressures, prediction markets are emerging as a parallel opportunity. Since adding sports prediction markets beginning with the 2025 Super Bowl, Kalshi’s sports markets have rapidly grown to become a significant part of its business. That is despite currently offering limited sports markets (moneylines and futures) rather than comprehensive betting options available at regulated sportsbooks.
This regulatory arbitrage could become increasingly valuable if sports betting taxes continue climbing. Kalshi’s position in the prediction market space, operating under different regulatory frameworks, may provide insulation from the tax increases hammering traditional sportsbooks.
The Illinois tax increase likely represents the beginning, not the end, of a nationwide trend toward higher sports betting taxation. Investors should brace for continued volatility in sports betting stocks as more states follow suit.
Defensive plays may include operators with diversified geographic exposure and alternative platforms like Kalshi that operate in adjacent but differently regulated spaces. Aggressive growth strategies in untaxed or low-tax jurisdictions may become increasingly valuable as the regulatory landscape tightens. Sports betting companies are already eyeing the prediction markets opportunity, but none have been willing to take the plunge completely amid continued regulatory and legal uncertainty.
