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Last summer, Illinois lawmakers introduced a per-wage tax to its licensed sports books, which could be up to 50 cents per bet. A controversial measure for sure. The tax has certainly raised more cash for state coffers, but now some lawmakers have raised eyebrows as they look to repeal the act. Meanwhile, over in Michigan, Governor Gretchen Whitmer is looking to introduce and impose a very similar tax. So what is the per-wage tax? Why is it so controversial? And why does it matter? Welcome back to iGaming Daily, supported by OptiMove, the creator of positionalist marketing and the number one player engagement solution for iGaming and sports betting operators. Learn how OptiMove's positionalist marketing is changing how iGaming teams operate. Discover how operators are using OptiMove's positionalist marketing platform to launch personalized CRM campaigns, dynamically change casino lobbies and bet slips, and create engaging gamified experiences. You can learn more at OptoMove.com. I'm Charlie Horner and joining me to discuss all things sports betting tax in the US is SBC America's senior reporter, Tom Nightingale. Tom, welcome back to the show. How's things? Yeah, thank you very much. Yeah, I mean, and what better way is there to spend a Friday morning for me, afternoon for you than discussing sports betting tax changes in various states? I mean, if this is an issue that terms of the news cycle, keeps on giving really, much to the frustration I think of leading sports books. you don't have to sound too passionate about it, Tom. No, it's something that we've obviously talked a lot about in Europe in the last six months, so why not bring it stateside as well? eh Okay, let's kick off into it then. Might be a good place to start by just outlining what the per-wager tax is and just outline a little bit about what it aims to do. Yeah. I mean, so obviously the US, like most jurisdictions, like most online sports betting and online casino tax is based on revenue, whether that's gross gaming revenue or adjusted gaming revenue. States take a percentage slice of that. This per-wager tax that Illinois introduced, I think it came into effect July 1st. last year was pretty unique really in terms of, we're used to seeing states trying to raise money through taxing, online gambling, but Illinois's idea, the governor's idea was to charge, it was 25 cents on every single online sports bet taken by a licensed sports book in Illinois up to a threshold of 20, the first 20 million bets taken in a fiscal year. Beyond that threshold, it doubled to 50 cents per bet. And I mean, some perspective because these are just numbers. Fandual and DraftKings, by far the two biggest sportsbooks in the US. I think it took them a matter of about three months, maybe four months to cross that threshold and start being charged 50 cents per bet. They broke that barrier pretty quickly. It's a pretty hefty price to pay when you consider that Illinois also taxes revenue on a sliding scale that goes up to 40%. above a certain threshold of revenue. Illinois quite quickly became pretty much one of the most prohibitive states for operators to do business. quickly became sort of sports betting operators, enemy number one, very, very quickly. 25 cents and 50 cents doesn't sound like a lot, but when you consider the average bet size can't be too much higher than that, maybe a couple of dollars, maybe up to $5 in some cases. It quickly adds up, doesn't it? It does. I mean, that's a can of worms in itself, isn't it? It's is the minimum bet in Illinois, because we'll talk a minute about what operators did in response. But I mean, in terms of the impact, the fiscal impact, lawmakers, when they were talking about introducing this change, which, by the way, was added into the state budget very, very late. I think there were days, a matter of days before it, between it being shoehorned in there and then it sort of everyone realizing this is actually happening. Lawmakers estimate, I think that it would bring in about could bring in about $36 million a year, I think, starting in its first fiscal year, which we're a over halfway through. Data from the Illinois Gaming Board suggests that it actually took about four months to hit that $36 million. Wow. I believe that at the last count, which is the first six, we've gone up to the first six months to the first half of the fiscal year. I think it's raised more than $60 million additional tax dollars. the state, think I'm right in saying. Fanjul and Draftkings have paid, I think, 50 million of that 60 million between them. just before we carry on then, what's the discrepancy between those initial estimates and what's transpired? it just these lawmakers just underestimating how much people bet in their own state? it just it was being rushed through very quickly and they didn't perhaps understand? What do you think it was? It's a good question. I guess it's probably a mixture of those sorts of things. think that I still think that a lot of lawmakers, see, we hear a lot of legislative legislative discussions and stuff. I still think a lot of lawmakers sort of fundamentally do not quite understand how big the business of online sports betting is, particularly when you're in a state with like Chicago, like the sports cache of that city. I think maybe there's, there's sort of undervaluing there. And then like it was, I don't really know the origin story, to be honest, of this tax change. I don't know how it really came about at such short notice. I don't think it was like a lot of proposed bills from start to finish or until they die in the legislature, they go through various fiscal analysis and that sort of stuff. I'm not really sure that this had that kind of level of due diligence. So I think they ended up just sort of undervaluing it. I mean, the numbers have been pretty staggering, to be honest. genuinely staggering. But nonetheless, the tax has gone through. It has been in place for, as you say, the last six, seven months. We always hear operators say uh as soon as tax rises a hit, they will put in mitigating measures. So what have operators done in Illinois to sort of offset those prohibitive and restrictive tax measures? Yes. I mean, part of the reason that this is such an interesting case study is not only because the tax itself was unique, but m Every single one of Illinois licensed 10 sports books um introduced some kind of change and they were split right down the middle. Five of them announced that they would be introducing a customer surcharge under varying terms where they were basically passing on at least some of the liability from the per wage attacks onto their customers. So I know I can't remember the exact specifics but I'm Banjul and DraftKings introduced theirs, I think, from September the 1st, which is about the time that they started paying the 50 cent rate. And I think they charge 50 cents per bet in most cases, but there are a fair few nuances to it. Certain users don't get charged as much and that sort of stuff. So Five Sportsbooks did that. I think it's to say probably the five biggest ones. I don't know that for sure in terms of revenue numbers, but mean DraftKings, Banjul, Fanatics certainly did it. And then the other five went for minimum bets. So this comes back to what you saying before about how much people really betting anyway. Maybe slightly more now than they were before because the other five operators introduced varying levels of minimum bet or should I say in some cases raised them because in some cases there were small minimum bet amounts already in place and they range from I think a dollar at bet rivers, although they subsequently then increased it again after a few months, all the way up to Circa, which is a unique case because they target high stakes bettors and they're a very different model of sportsbook. They charge their minimum is $10 per bet, which fits their model more than say like a DraftKings or a Fanjul model. so just the sheer fact that every operator pretty quickly said, yeah, we're going to need to do something about this to offset this cost. shows how big of a deal it was, I guess, and how big of an adjustment and how unique an approach, well, until now, how unique an approach from a state it was. Yeah. And I think we have to consider as well that Illinois, as you said, does have that tiered tax system in place as well, which makes it even more prohibitive. So those sports books will want to just put in some more uh mitigating measures in. Draftkings look quite the visionary company really when you think about it because I think it was at the summer of 24 that they maybe teased that they might introduce a surcharge and then everyone just pushed back and said, no you can't do this, this is terrible. And lo and behold, oh they were way ahead of the curve. Yeah, I mean, we took the scenic route, but we ended up in the same place, didn't we? Yeah, well, here's one for you then, Tom. um If we're around $60 million and counting, smashing the... the projections. em Why are lawmakers now looking to repeal that law? So this is a super interesting one. So basically the chair of Illinois House Gaming Committee is the guy who has introduced this bill. So I mean, he's not just, you know, I would say that he's not just like any old lawmaker who has to be educated on what online gambling actually means. Like he at least is the chair of the gaming committee who discuss gaming issues on an annual basis. He introduced a bill pretty recently. I can't remember exactly when, last week maybe. that would end it effective July 1st, 2026. So basically one year and done. He said, I don't think it's in the bill, the bill itself, the bill text is pretty short. But I think he said maybe in an interview to local media or something, he said that the Illinois Sports Wagering Act, quote, was never intended to give local governments authority to create their own rules. And this is the heart of the issue, I think, in Illinois, because I should say, as of the start of this year, the city of Chicago also taxes online sports betting at 10.25%. So any bets taken within the city limits, which you have to imagine probably most of them in Illinois, also get taxed at 10, operators also get taxed at 10%, 10.25 % by the city. By the way, there's also a Cook County tax of 2%, Cook County contains Chicago. It stacks up like kind of ridiculously now. And there are multiple bills in play to also repeal the Chicago city betting tax. with the same argument that it is the state's prerogative to regulate, to tax sports betting. What the Chicago, some of the Chicago repeal bills would do is actually sort of, I think, tweak the language in state law to say that basically home, home rule counties or something, so cities, counties, you know, anything sort of below state level cannot step into, state regulation zone. So I think I imagine there's probably a fair bit, to be honest, I imagine there's probably a fair bit of lobbying and pressure from leading sports books, the Sports Betting Alliance as well about this because they hate it as they would. But I think it's indicative of the fact that at least a certain group of legislators at state level are not particularly pleased with municipalities and cities sort of trying to, I guess, muscle their way in on the act when it comes to betting revenue and that sort of stuff. Yeah, I mean, that makes complete sense. That must be a unique circumstance in terms of Chicago being a city imposing a 10 % tax. And that would make effectively FanDuel and DraftKings tax rate way, way over 50%. Yeah, think estimates from analysts about 55 to 60%, I think. Which is just prohibitive to the extreme. there must be uh analysts behind the scenes at both of those operators thinking, is it actually worth being in this state full stop? So I'd imagine their government affairs officials are spending a lot of time in Chicago recently. So I hope the weather up there is not too cold. em But over in Michigan, Tom, it's quite the opposite story because em as I said at the top, Governor Whitmer is looking to impose a very similar tax. What's the story there? guess she likes what she's seen. I guess that's the story. mean, it's a carbon copy as well. 25 cents up to 20 million vets, 50 cents beyond that. It should be noted as well that Michigan, unlike Illinois, is also a legal online casino market. And she also wants to raise the top, like the marginal online casino tax rate from 28 % to 36%. And again, it's about the governor's point view and the budget's point of view, it's about plugging that gap. There's been federal funding cuts and with everything that's going on in the US, arguably more than ever, state governments are looking for ways to raise revenue and online gambling is right there as a hugely lucrative potential source of this. think Michigan is the largest online casino market in the US by revenue, I think. marginal i-casino tax rate is probably a significant amount. I think in toll they think it would generate close to 200 million in revenue for the state annually between the per-wage attacks and the online casino tax together. think the sports betting the per-wage attacks was about maybe about 70 or 80 million of that. To be honest, at this point, it's still pretty early, but it seems like a kind of basic copycat situation. Once that door is open, can you blame other states for looking at Illinois? Especially by the way, like in Illinois, as the Sports Betting Alliance keeps saying, like the number of bets placed per month in Illinois is down like 15 or 20 % year over year as a result of probably the surcharges and the minimum bets, maybe like those mitigating measures. But total handle like dollar value wagered per month, it's actually pretty steady and is still kind of growing, albeit probably growing more slowly than it would have been growing at these. surcharges and stuff not being in effect, but Handel's not really been that badly affected. So you can kind of see why a like Michigan is looking at Illinois and thinking from our perspective as a government, that looks like it's been a pretty big success. Sports books would obviously argue very fiercely the other way, but that's just very different perspectives on the same issue, isn't it? Very different perspectives. But hey, look, at least it's not 50 cents per spin. That would cause a lot of... Well, give them time. I might have given them a bit of an idea there. We should probably go to a break, Tom, before they give us any more wise ideas. yeah, we'll take a quick break and we'll come back and we'll have a look at what's going on in Arizona because there's something fairly interesting happening over there. Welcome back to iGaming Daily. We're talking all about tax in the United States. em Illinois seems to be quite the influential state, Tom. em set in more trends, and Arizona is the latest to take one of its bright ideas in terms of tax. Looks like there could be a tiered tax system on sports books in Arizona. So what's the story there? So Arizona taxes online sports betting at the moment at 10%, which is not a huge amount. It's very much on the low end of the scale. In their state budget, they unveiled a plan to tax the, I guess, the largest, the most successful operators, the one who generate the most money or take the most bets, a new rate of 45%. Now, this caused some confusion when it was first announced because in the budget presentation, that said it was 45%. It said that was for every operator who earns, I think, 75 million or more in monthly revenue. That didn't add up with the numbers from the Arizona Department of Gaming. So we went and checked with them and we got confirmation that what they actually mean is $75 million in monthly handle. So value of wages taken, not revenue made. Using that handle figure, which is what they meant, a little bit of confusion between revenue and handle, which doesn't exactly fill you with confidence, it? there you go. I think... It's fair to say that that 75 million in average monthly revenue that would definitely hit Fanjul and DraftKings, surprise, surprise. think also like Fanatics and BetMGM, that tier of operator would be in the danger zone for that. So that would be a note, you know, that is a noticeable tax increase for the biggest operators. But again, like you say, it's not the same as Illinois, but that you can, it doesn't take a genius to work out the kind of inspiration for this, I think. And I think it's just indicative of we mentioned earlier in the call really that when gambling is an entertainment, it's a hobby, whatever you call it, states clearly think that it's ripe for the taxing. And I think part of the issue here is that a lot of sports books, when they are trying to get new states to open up online sports betting, a big, big, big argument from legislators is it's happening in the black market, let's regulate it, let's tax it, look at the revenue. A big argument from sports books is consumer protection and that sort of stuff, which is also valid. But another big argument from sports books is, you know, we don't mind being allowed to do business if we, we don't mind paying you tax. If you'll let us in to do business, it'll create more revenue for you. And so when you're kind of saying, when you have both legislators and sports books saying this is a revenue opportunity for a state, how much can you complain when a state turns around and tries to charge you more after a while? I think this goes to the very heart of this issue actually. Because when we saw all those states legalise sports betting, was largely between that 2019 to 2022 period. The context is really important there. States needed the cash. It was COVID. There was massive deficits in budgets and sports betting was theoretically a quick way to earn that cash and try to plug those gaps. Now, at tax rates at 10 %… It's what I was going to say. …with sports betting the margins are pretty tight. mean, fair play to Fanjul and Drakings and some of the other operators who are managing to maybe make 10, 11%. That's probably testament to same-game parlays and those kind of products, but it does go to show that if you want to raise that significant level of cash… Does tax rates need to be higher than 10 % or else that argument falls, doesn't it? Yeah, I think so. And I think it goes back a little bit as well that I'm not sure that what we're saying earlier, like I'm not sure that even state legislators, when they are doing fiscal analysis of this stuff and they're considering legalizing online sports betting from the outset, I think there is a consistent trend of not really having their eyes fully open to just how lucrative this is and just how many people in their state are possibly already betting. just in a way that you don't see any tax revenue as a state. Or if you're a big sports fan in a major city in a state that doesn't offer legal sports betting and suddenly legal sports betting is there and you can go on Fanjul or DraftKings and you can bet along with the game, I better believe a pretty significant percentage of sports fans are going to do that even if they weren't betting before. So think when states set up these markets, there's a tendency to think like, we'll take 10 % of revenue. That's pretty good. And then they see how much money sportsbooks make and how many people are betting and the sheer volume of it. they think, well, 10 % we sort of sold ourselves short, didn't we? Should we try 30? You know, just like last year, Maryland, Louisiana, New Jersey, think those were the three all significantly increased their online sports betting tax rates. And that was all kind of revisionist because Maryland was at 15, Louisiana was at 15, New Jersey was at 13. These are all like fairly low. You don't want to necessarily veer towards the New Yorks of the world and places like that where you're looking at 51%. That's pretty prohibitive. But for me, for example, I'm based in Ontario. There's a general consensus, I think, that in a market like Ontario's 20 % is a tax rate. Every operator is pretty happy with that because it's not too... provincial government makes a lot of money from it. It's not too prohibitive for operators. So if you're a state that you're only charging 10 or 15%, You are sort of these days, you're kind of on the generous side, really. Yeah. I think even before last year, Ohio also doubled the tax rate from 10 to 20%. then tried to do it again last year to 40 and it got voted down or, you know, run into quicksand in the legislature. Yeah. Governor Dewine has been on a bit of a journey when it comes to sports betting now. So maybe that's treat that slightly differently. That's another podcast that is. That's a whole other issue in itself. But just before we wrap things up. Tom, think you've joined the podcast fresh out of the DraftKings earnings call, I'm not mistaken. em I have, So what did Jason Robbins say on tax? Was there any sort of interesting little tidbits to mention? Yeah, well, I mean, it's sort of part of a larger issue. Jason Robbins, as you would expect, probably spent the vast, vast, vast majority of the earnings call talking about DraftKings predictions and the prediction market opportunity. You know, DraftKings. Fandral, now have the luxury for now, least, pending litigation of offering what is, let's face it, sports betting just on a smaller scale in terms of the quality of the offering and the range of the markets. They get to now offer sports betting in California and Texas and places like that. In that context of prediction markets, you also do wonder, I've heard it mentioned a couple of times in state legislative sessions, lawmakers are now aware that state residents, whether the state has legalized state regulated sports betting or not, residents also have the option of downloading Caoshi or downloading crypto.com or Polymarket and basically betting on sports there instead in a way that states don't get tax revenue for. So A, I wonder if that is playing into the tax conversation for states. Like now there is this looming alternative. that has kind of been given the green light at federal level. So we should, you know, try and do something. Jason Robbins for DraftKings, you know, he we always hear sports books say, raising taxes is a bad idea. Try legalizing on like a casino or, you know, try other things. Jason Robbins said today that in his view, states would be crazy. Absolutely crazy, I think, to raise sports betting taxes right now, given the fact that prediction markets have proliferated so much and offered consumers these other options. And I mean, you may be heading towards some kind of inflection point where people like Fanjul and DraftKings who have state-regulated sports betting where they get taxed really heavily in some markets and then they have predictions that offer sports where they don't really get taxed at all in other markets. At what point does state-regulated sports betting in a certain state become kind of Not so much money down the drain, but far less appealing than it was when there wasn't really another option for them in terms of their business model. This prediction markets conversation is going be going on for so long. We'll be back soon, I'm sure. I'll be back soon with you talking about prediction markets. Everything's still going on in the courts, but it's also an ongoing assessment for operators who do both things. Where's the balance? How much do you lean into one over the other, particularly in the context of markets getting more expensive to do business in? So it is an interesting time, really, told, to say the least. think we're to find out a lot over the next 18 months. We will probably talk about this a little bit more next week. But I think the fact that Plenty of prediction markets representatives have now joined a new committee. think the Innovation Advisory Committee or something like that with the CFTC and Michael Selig's sort of huge 180 turn in terms of his views on prediction markets. eh Certainly going to keep us on our toes, would say. that's again for another podcast. We'll probably come back to that next week. But for now, Tom. Thanks ever so much for joining me today. I think we're all taxed out now. I think we should probably go and sit down, maybe sit in a dark room for a little bit. em But yeah, thanks for joining me. And thanks to the audience for tuning into today's episode of iGaming Daily and come back tomorrow to keep up to date with all the latest global gambling news.