A gaming analyst fears an Illinois tax hike for online sports betting could spread to other states, degrading the product and pushing gamblers to offshore sites.
Gaming industry consultant Brendan Bussmann, managing partner of B Global, outlined his concerns in an investor note published by Truist Securities. He also spoke positively about the igaming prospects in Illinois and other states.
Last week, Illinois lawmakers changed the tax to a progressive structure that will top out at 40% for online sports betting (OSB) companies, up from the 15% flat rate in place since the industry launched in the state in 2020.
FanDuel and DraftKings threatened to potentially reduce operations over the tax increases and their stocks traded lower after the legislation was passed over fears that it could spread to other states.
“As a proponent of lower-tax operating environments, Mr. Bussmann believes the hike to be unfortunate, as it punishes the operators already providing the state with sizable tax revenues,” Truist managing director Barry Jonas wrote in the note. “With the state now targeting $200 million of incremental taxes, Mr. Bussmann sees a worse product offering (less innovation), worse odds, and less promos for Illinois customers. Mr. Bussmann sees the non-taxpaying offshore online sports betting operators as beneficiaries of the hike.”
Illinois is the second state to increase its tax rate; Ohio raised it from 10% to 20% in 2023. Bussmann believes that was due to Ohio Gov. Mike DeWine’s views on online sports betting.
Investors now have an increased concern around contagion.
“Massachusetts considered a hike this year, though it was quickly rejected, and Mr. Bussmann doesn’t think it’s likely to pass in the future,” Jonas said. “New Jersey is in the same boat, also unlikely, given how seasoned the state is with governing gaming policy combined with the governor likely having other items to focus on before ending term in 2025.”
Bussmann also mentioned Pennsylvania as a candidate, though that state likely has its hands full with the proliferation of skill-based games, Jonas wrote.
Longer-term, Bussmann worries that states yet to legalize will simply institute higher tax rates at conception, such as New York did at 51% “without taking a look under the hood and understanding industry dynamics,” Jonas wrote.
During the interview, Bussmann told Jonas that Illinois is one of a handful of state candidates for igaming legalization. He said the state “has a lot on its plate gaming-wise,” citing the OSB tax raise, VGT expansion, and Bally’s working to construct a casino in downtown Chicago.
“While the VGT lobby is against igaming, Mr. Bussmann believes igaming will become legal in Illinois at some point,” Jonas wrote. “The state has repeatedly turned to other forms of gaming for tax revenues, but it’s unclear when that domino falls.”
Bussmann also weighed in on the New York state licensing process for casinos around New York City. The next step remains convoluted, as the land-based process is mired in delays, with no end in sight.
“Mr. Bussmann sees potential for the state to flip-flop priorities and put igaming in the forefront, given that the speed at which the state could turn on igaming is far faster than the time it’d take to construct/expand land-based casinos,” Jonas wrote. “Doing this could provide the state a bridge to generate tax revenue until the land-based process concludes.”
On Thursday, Michigan announced it issued a cease-and-desist letter to offshore OSB platform Bovada. Bussmann applauded the state’s Gaming Commission for taking on the illegal market, becoming the latest state to take some sort of action in recent years, following Delaware, New Jersey, New York, Maryland, and Nevada.
“Mr. Bussmann believes it will take a coordinated effort between states and the federal government to make a dent in the gambling black market, which we and Mr. Bussmann believe is likely far bigger than governments realize,” Jonas wrote.
Bussmann highlighted states to watch for gaming expansion.
Among them is Minnesota, which continues to ponder sports betting and ran out of time in its last session. He expects the topic to be in the mix next year, though has serious concerns that Illinois’s tax increase will have negative ramifications to the tax rate.
Georgia will discuss both land-based casinos and sports betting next year, though nothing seems likely to pass for a few years.
Missouri continues to ponder sports betting with a ballot initiative aimed at November 2024 that will likely encounter opposition from land-based casinos. Missouri is unlikely to pass next year if the ballot initiative fails, but should be not too far off, Bussmann said.
California and Texas continue to be key states to watch and given their sheer size would have a significant impact on the gaming landscape. California is having productive conversations around sports betting being on the ballot in 2026. Given continued opposition from the tribes, Bussmann said he hopes for 2026, though 2028 could be more likely.
Texas land-based casinos and sports betting still seem unlikely in the near future, given the lt. governor’s stance on gaming. Bussmann, however, sees both as inevitable, with 2027 the most likely.
Washington, D.C., recently shifted its online sports betting monopoly from lottery operator Gambet DC to FanDuel, which has seen an immediate pickup in traction. Bussmann noted that the City Council is reconsidering the current market structure and possibly opening up the market to other operators.
Arkansas came out of nowhere earlier this year in considering igaming, but Bussmann doesn’t see legalization there as imminent.
Maryland couldn’t get igaming across the line last session, though budget constraints could potentially drive the conversation, Bussmann said.
On the international front, Wynn Resorts remains on track to open its Ras Al-Khaimah property in 2027. The UAE continues to evaluate lottery operations in the meantime. With regard to further gaming legalization, Bussmann cited an ongoing casino-operator process in Abu Dhabi.
Bussmann noted several historical horse racing expansion opportunities both domestically and internationally. There have been conversations around HHR machines in India, given a sustained interest in horse racing, he said.
In addition, Thailand continues to evaluate land-based casinos. Bussmann said casino operators need to have a better understanding of what the regulatory and tax structures will look like in the country, given the corruption challenges that have and continue to exist. U.S. operators will not enter the market in any circumstance that places their existing licenses in jeopardy, he said.
