Sports Betting Alliance Warns Of Chicago Shutdown If Tax Passes

The Sports Betting Alliance (SBA) Thursday warned Chicago Mayor Brandon Johnson that sportsbooks will be forced to shut down in the city on Jan. 1 if the current budget presented to the City Council passes with his proposed 10.25% tax on revenue from wagers placed within city limits.

Johnson originally proposed the levy as part of his 2026 budget, which would take effect at the start of the year. City aldermen, however, rejected Johnson’s budget in the Finance Committee and retained the mayor’s proposal in crafting their own. The aldermanic budget also proposed to legalize video gaming terminals in Chicago as a means of trying to plug a $1.2 billion budget gap.

In the letter to Johnson obtained by InGame, the SBA noted the City “does not currently have a licensing rubric that contemplates online sports wagering operators.” That lack of home rule authority when it comes to tax revenue collection leaves “no meaningful way to comply with the ordinance upon its effective date.”

The result, as the SBA continues in the letter, means “operators cannot continue to legally conduct business in the City.” The group adds that any shutdown of online sports betting in the third-largest market in the U.S. “would undermine the ordinance’s revenue and policy objectives” by sending bettors to non-regulated platforms and cost the state potentially “tens of millions” of dollars in revenue.

How we got here

Johnson, an embattled first-term mayor, submitted the tax proposal among multiple ordinances as part of his proposed $16.6 billion budget in October. The proposed levy, which projects to generate $26 million in revenue, was not recommended by the city’s budget task force in its interim report released in late August. The group suggested a per wager surcharge for online, city-based wagers of either 25 or 50 cents that was projected to raise between $8.5 million and $17 million.

Despite the City Council Finance Committee rejecting Johnson’s budget in mid-November largely due to a proposed corporate head tax, the aldermen quietly retained his sports betting tax as part of theirs. That advanced out of the Finance Committee Wednesday and could be approved as early as Saturday.

Johnson has not said if he would veto the aldermen’s alternative budget, which could create a government shutdown if a budget is not enacted by the new year. If Johnson does issue a veto, the City Council would need a two-thirds majority of 34 votes to override it. While a veto would shutdown city government, it would allow wagering licensees to continue to operate, as the new budget would not be in force.

Johnson’s proposed levy has opponents beyond the sports betting industry as state legislators also are looking to quash it. Illinois State Rep. Daniel Didech, chairman of the Illinois House Gaming Committee, submitted a bill in October that would prevent Johnson from enacting home rule to levy taxes on sports betting by prohibiting local jurisdictions from taxing, regulating, or imposing fees on gambling.

Illinois Politico reported Thursday that State Sen. Patrick Joyce has submitted a bill that would reduce Chicago’s share of the Local Government Distributive Fund by an amount equal to whatever the city raises from a sports wagering tax. 

How operators would be impacted

If approved as part of the budget, wagering operators would face a minimum 32.25% tax on Chicago-based revenue. The lowest tax tier at the state level is 20%, and operators also pay a 2% tax on revenue generated within Cook County, where Chicago is located. The Cook County tax was part of the original legislation passed when sports betting was legalized in Illinois in 2019.

The only current tax on sports betting revenue in Chicago is from the 2% levy DraftKings remits for revenue generated at its retail sportsbook adjacent to Wrigley Field.

The $26 million in estimated revenue for the budget comes from a projection of operator adjusted gross revenue (AGR) from city-based wagering totaling $253.6 million. That is 40% of the $633.6 million in revenue generated within Cook County in 2024.

Based on those figures, InGame estimated DraftKings would face an effective tax rate of 54.9% on Chicago-based revenue when all levies are included or at their highest rate, while FanDuel would send 54.5% in remittance. Both operators are expected to reach the maximum 40% tax rate at the state level as early as December by crossing $200 million in fiscal year AGR.

Illinois-based sportsbooks began paying progressive rates at the state level last year with a floor of 20% and top tier of 40% based on revenue thresholds.

Mobile sportsbooks have also been paying a per-wager surcharge of either $0.25 or $0.50 since July 1. That was enacted by state legislators with the Fiscal Year 2026 budget passed in May. The per-wager surcharge has generated $20.6 million in state tax revenue the first three months, with FanDuel and DraftKings already paying the higher surcharge after surpassing 20 million accepted wagers.

A somewhat similar snafu

The situation in Illinois is reminiscent of a similar one in Connecticut in 2021, when state lawmakers legalized sports betting and daily fantasy sports (DFS). Previously, DFS companies had been operating unregulated, but the new law passed May 27, 2021 required DFS operators to have a partnership with a tribe by July 1, 2021 in order to legally operate. At that time, DraftKings had already announced a partnership with the Mashantucket Pequot Tribe, which owns and operates the Foxwoods Casino, while FanDuel secured a deal with the Mohegan Tribe, which owns and operates the Mohegan Sun Casino.

Under Connecticut law, only the state’s two tribes and the lottery can be licensed for sports betting and daily fantasy sports. The state ultimately granted provisional temporary licenses that became effective at midnight July 1, 2021, and allowed the two companies to continue to operate — though they had to pay back taxes.  Every other DFS company that was live in Connecticut was forced to shutter.

DraftKings, FanDuel, and other legal operators in Illinois already have market access for sports betting — but the city of Chicago’s last-minute push leaves a short runway for licensing, which often takes months.

Jill R. Dorson contributed to this story