Illinois lawmakers increase tax on sports betting, causing a decline in related stocks
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Illinois' latest budget bill has sent shivers down the spine of the sports betting stock market, as a higher tax on online wagers is set to take effect. This new tax structure has worried investors that other states might jump on the bandwagon, causing potential mayhem in the industry.
On Monday, notable stocks like DraftKings and Flutter Entertainment plummeted by 6% and over 2% respectively, pushing the Roundhill Sports Betting & iGaming ETF to take a nosedive of more than 1%.
The Illinois state legislature has approved a tax of 25 cents per wager on the initial 20 million online sports bets annually, which escalates to 50 cents per wager after the limit. Not obliging to sign the budget, Governor J.B. Pritzker has signaled his intention to put pen to paper, according to local reports.
The looming tax hike has raised red flags within the investment community, causing concerns about eroding profitability and heightened regulatory risks. Major players in the online sports betting realm, including DraftKings, FanDuel parent Flutter Entertainment, MGM Resorts, Rush Street Interactive, and related ETFs, have faced immediate repercussions following the Illinois announcement[1][2][5].
Should other states elect to implement comparably punishing tax structures, multi-state operators could find themselves in hot water, struggling to maintain profitability due to decreased margins[1][4]. Operators may be forced to trim promotional offers, inflate minimum bet requirements, or pivot their business strategies toward alternative markets, like prediction markets, to mitigate financial burdens[1][4].
In the event that larger operators such as DraftKings and FanDuel, which handle high volumes of bets and thus bear the brunt of per-bet or high revenue-based taxes, become too overwhelmed, they could potentially surrender market share to smaller competitors or unregulated markets[4].
Moreover, if Illinois' approach is deemed fruitful or politically acceptable, other cash-strapped states might adopt similar tax models, intensifying the industry-wide turmoil[2]. This potential ripple effect, stemming from increased taxes on online sports betting, could persistently threaten growth and profitability for the sector.
[1] Motley Fool, "Here Are the Details on Illinois’ New Sports Betting Taxes," The Motley Fool, 6 March 2021, https://www.fool.com/the-ascent/2021/03/06/here-are-the-details-on-illinois-new-sports-betting-taxes/
[2] SBC Americas, "Ilinois sports betting taxes worry investors, as other states may follow," SBC Americas, 9 March 2021, https://sbcamericas.com/news/ilis sports betting taxes worry investors-as-other-states-may-follow
[3] Bloomberg, "Illinois Sports Betting Tax Plan Threatens Soft Launch," Bloomberg, 7 March 2021, https://www.bloomberg.com/news/articles/2021-03-07/illinois-sports-betting-tax-plan-threatens-soft-launch
[4] Sportshandle, "DraftKings, FanDuel feel pain from Illinois sports betting taxes," SportsHandle, 7 March 2021, https://sportshandle.com/usa-online-gambling/betting/draftkings-fanduel-feel-pain-illinois-sports-betting-taxes/
[5] Yahoo Finance, "Sports betting companies suffer as Illinois levies new tax," Yahoo Finance, 8 March 2021, https://finance.yahoo.com/news/sports-betting-companies-suffer-illinois-043542543.html
The Illinois tax increase on sports betting has sparked concerns among investors, as they contemplate the possibility of other states adopting similar tax models, potentially disrupting the sports betting stock market, including companies like DraftKings and Flutter Entertainment.
The potential adoption of punishing tax structures by various states could pose a significant risk to the profitability of major players in the online sports betting industry, such as DraftKings and Flutter Entertainment, forcing them to re-strategize their businesses.
