New Illinois Sportsbook Tax Raises The Stakes On Future Real Estate Investment

When Illinois legalized sports gambling five years ago, sportsbook operators bet big in hopes of cashing in on what would become one of the biggest legalized sports betting markets in the country. 

So far, the gamble has mostly paid off. But a new tax structure enacted this summer could threaten what had been fast-paced real estate investment in brick-and-mortar facilities in the state, according to industry watchers and advocates.

Before July 1, Illinois taxed sportsbooks at a 15% rate on their revenue after paying out winnings and covering certain costs. The new progressive structure taxes sportsbooks at a minimum of 20% on their adjusted revenue for the smallest operators and a maximum of 40% for the biggest operators.

That increase, almost triple in some cases, means some Illinois sportsbook facilities could face harder decisions about their real estate even as betting booms.

Bettors have wagered more than $36.8B in Illinois since the state legalized sports betting in 2019, with operators bringing in about $3B in adjusted gross revenue and the state collecting roughly $456M in taxes. Demand for sports betting options is high and well ahead of initial projections from economists.

“Sports betting in Illinois has exceeded expectations,” said Frank Manzo, staff economist at the Illinois Economic Policy Institute. “Illinois reached almost exactly our estimates in the second full year after implementation, and then it's blown past those every year since. Double-digit growth, really, every single year.” 

The burgeoning market led operators to invest in physical locations in the state. Accell Entertainment acquired the owner of the FanDuel Sportsbook & Racetrack in Collinsville, Illinois, earlier this month and plans to invest between $85M and $95M to fund the construction of a casino and racetrack investment. DraftKings poured $25M into its sportsbook at Wrigley Field, which opened its doors in June 2023 and began taking bets in March 2024. 

But operators now have a new financial hurdle to navigate. Gov. J.B. Pritzker signed the nation's first progressive tax structure on sports betting into law in June, legislation that went into effect in July. 

The increased tax rate will negatively impact the broader Illinois economy, said Jeremy Kudon, president of the Sports Betting Alliance, a coalition of legal sports betting platforms representing the interests of DraftKings, FanDuel, BetMGM and Fanatics in Illinois.

Kudon told Bisnow in a statement that sports betting companies will likely choose to invest in states with a higher return on investment due to the new tax structure. 

“In New York, which has a similarly high tax rate, sports betting CEOs have testified how the tax rate has forced them to cut investments in brick-and-mortar locations, advertising budgets and marketing partnerships with local businesses,” Kudon said. “The same will no doubt happen in Illinois, and those cuts and decisions not to invest will have a significant impact for many businesses — especially those in media, sports, hospitality and entertainment.”

FanDuel Group President Christian Genetski said at an Albany, New York, hearing in 2023 that the company was investing 50% less in the state due to New York’s 51% tax on operators, according to NY Sports Day. Yet the operator still signed off on the tax because it wasn’t going to turn down the sizable New York market, Genetski said. 

Since the Illinois Supreme Court’s ruling and the state’s subsequent legalization of sports betting, Illinois ranks near the top of the 39 states and Washington, D.C., that have legalized sports betting. Its total amount wagered and state tax revenue are fourth among qualified states, while operator revenue is third, according to Legal Sports Report. 

The Illinois Gaming Board has given out 27 permanent licenses to businesses associated with sports betting operations across the state, including casinos, resorts and suppliers of gaming equipment and supplies. Another 13 businesses have temporary licenses to operate in the state, and eight more have submitted applications to the regulator. 

State officials estimate the change in the tax structure will bring in about $200M in additional tax revenue starting in the 2025 fiscal year, according to an October report from the Illinois Commission on Government Forecasting and Accountability.

In the report, officials expressed “some concern” that the higher tax structure might decrease sports wagering activity, but they also said it could be counterbalanced by new casino sportsbooks and online wagering platforms expanding into the state to capture growing revenues. 

Six months in, the impact is still nebulous.

“It is definitely true that sports betting activity could decrease due to the tax reform, but at the same time, there are avenues of expansion for the state and for the market through new casino sportsbooks and from new online betting platforms,” Manzo said. “We haven't noticed a major shift. It's kind of been continued business as usual for the most part.”

Sports betting at physical locations pales in comparison to online wagers — the state reported bettors made 98.8% of wagers online in the 2024 fiscal year. But physical locations still provide an opportunity to bring people together for a shared experience, Manzo said. 

“You have lots of opportunities with a physical location, especially those at stadiums or also those that may bring in folks whether it's a casino or racetrack, but for other activities,” Manzo said. “‘[You] may bring folks in who want to get together with their friends and place some bets.”

Physical sports betting locations also attract bettors from states where sports betting is illegal or limited. 

In Wisconsin, where betting is restricted to in-person wagers on tribal lands, residents who want to bet on the Super Bowl or March Madness might come to Chicago, Rockford or Rock Island to go to a physical location to place bets, Manzo said. Bringing visitors in could have a ripple effect on other businesses. 

“If they come in for the weekend, then you're talking hotel revenue,” Manzo said. “If it's a casino … they're paying money at the bar to drink and also maybe to gamble as well.” 

The Illinois government legalized sports betting in June 2019 after the Supreme Court in 2018 struck down a law that had prohibited most states from allowing sports betting. It took time for sportsbook operators to set up shop in the state, and the first bet was placed in March 2020.

The state as a whole has seen material investment in gaming-related real estate, which isn’t limited to sports gaming and also includes casinos and racetracks, said John DeCree, the head of institutional investor research at CBRE Capital Advisors. Sports betting adds to the profit pool for a gaming company, but it isn’t directly correlated with casino construction opportunities, he said. 

“There’s been some influence to development,” DeCree said. “I wouldn't attribute it all to sports betting, but certainly that additional commercial revenue … or product offering helps make the math work.” 

But even though in-person betting doesn’t make up a significant portion of sportsbooks’ bottom lines, investment in physical space still has merit for operators, Manzo said. 

“I think what the sportsbooks and the casinos are demonstrating is that they think there's still great value to the in-person experience, even if it's 3% of their gross revenue,” Manzo said.