Sports Betting Stocks Slip as Illinois Passes New Per-Bet Tax

Sports betting stocks, including DraftKings (DKNG), Flutter Entertainment (FLUT), and MGM Resorts (MGM), declined after Illinois lawmakers approved a budget including a per-bet tax of 25 to 50 cents. Citi analysts estimate DraftKings would have faced $68 million in additional taxes over the last year under the new levy, potentially leading to reduced promotional activity; an industry group has criticized the tax as "crippling" and indicated plans to challenge it.

Analysis

The Illinois legislature's approval of a new per-bet tax, ranging from 25 to 50 cents, has exerted immediate downward pressure on sports betting equities, with DraftKings (DKNG) shares declining over 7%, and notable drops also observed for FanDuel parent Flutter Entertainment (FLUT), MGM Resorts (MGM), and Rush Street Interactive (RSI). This development, which Governor J.B. Pritzker is expected to enact, compounds existing fiscal pressures on the industry, following last year's implementation of a progressive tax system reaching up to 40%, a significant increase from the prior 15% rate. Citi analysts quantify the potential impact, estimating that DraftKings would have faced an additional $68 million in taxes over the past twelve months had this new levy been active. In response, it is anticipated that major operators like DraftKings and FanDuel, who reportedly exceed the 20 million bet threshold triggering the higher tax rate, will likely curtail promotional spending in Illinois to offset these increased costs. The Sports Betting Alliance has vociferously condemned the tax as "crippling" and has stated its intention to contest the measure, citing concerns over its adverse effects on the legal online sports betting market.

Key Decisions for Investors

• Investors should re-evaluate earnings forecasts for sports betting operators with significant exposure to Illinois, particularly DraftKings and FanDuel, given the direct financial impact highlighted by Citi's $68 million estimate for DraftKings.
• Monitor for shifts in operators' promotional strategies and customer acquisition costs within Illinois, as anticipated reductions in such spending could alter market share dynamics and growth trajectories in the state.
• Closely track the Sports Betting Alliance's efforts to challenge this tax and be vigilant for any indications of similar fiscal measures being considered in other jurisdictions, as this could signal a broader trend of increasing regulatory and tax burdens on the industry.