Illinois could see its sports betting tax rate increase to 35%, according to governor J.B. Pritzker’s proposed 2025 budget.

If passed, operators active in the Illinois market would see the OSB tax more than double from the current rate of 15%.

Designed to be “more closely aligned with peer states”, the tax is projected to increase total state betting tax receipts by more than $200m to $354m.

The state collected $144m in revenue from licensed sports betting operators during 2023.

According to the $52.7bn budget, the first 15% of the tax would continue to be directed to the state’s infrastructure Capital Projects Fund.

Meanwhile, the additional 20% would flow directly into the state’s coffers. The state has struggled with a budget shortfall this year, which the increased betting tax rate would reduce.

“I wish we had big surpluses to work with this year to take on every one of the very real challenges we face,” said Pritzker during the budget announcement.

“It’s important to note, that while this budget is tight this year, our fiscal house is in order, and we are able to keep our commitments to the people of Illinois.”

Illinois 2019 gaming law

The Prairie State passed its Sports Wagering Act in 2019, with the first legal bets placed during March 2020.

The law created a tethered licensing system, with mobile operators given the option of partnering with a master licensee, meaning either a casino, racetrack or sports team.

Additionally, the law provides for three online only licences issued directly to online sports betting businesses.

As of February 2024, FanDuel, DraftKings, Caesars Sportsbook, BetMGM, Fanatics and ESPN Bet are already live in the market, with other operators like Bally’s in negotiation with the Illinois Gaming Board.

On DraftKings’ Q4 earnings call, CEO Jason Robins highlighted Illinois as a state that could potentially legalise iGaming in 2024.

Despite iGaming legislation gaining traction in various US states, Morgan Stanley analysts remain sceptical about significant progress in 2024 and beyond.

Yesterday, zoomed in on Morgan Stanley’s 2024 gambling industry forecast, analysing mainly the US online sports betting landscape and highlighting the bank’s preferred stock selections. 

Today, we shift our attention to the potential for iGaming legislation in the US and its market prospects.

For context, Morgan Stanley said its expectations for iGaming remain restrained due to the slower legislative process. 

The bank revised the timeline for Maryland’s iGaming launch to Q4 2024 and pushed Indiana’s launch to 2025, which was previously anticipated in late 2024. 

Furthermore, the firm now anticipates Colorado’s iGaming launch in 2026, as opposed to the initially planned 2025, and has completely excluded Iowa from its considerations.

Slow progress

The analysts noted that iGaming in the US has yet to realise its full potential as a lucrative profit stream and source of tax revenue. 

Since the repeal of PAPSA in 2018, the legalisation of sports betting has far outpaced iCasino. 

Currently, almost 80% of states have embraced sports betting, while iGaming lags behind, being adopted in fewer than 20% of states.

However, given the only material online sports betting launch this year as of now is North Carolina, the focus for incremental legalisation upside has shifted to iGaming, the analysts said. 

“Distinct possibilities”

“The main states we continue to hear coming around as distinct possibilities are Maryland, New York and Illinois,” Morgan Stanley stated.

Although Maryland is part of the bank’s forecast for iGaming’s Total Addressable Market (TAM), projected to reach $7.1bn this year, the anticipated impact of Illinois and New York surpasses Maryland significantly, and is estimated to be 1.25-2.00 times larger, the analysts stressed. 

“We remain sceptical that either New York or Illinois could launch in the next several years,” the team concluded however.

In New York, the distribution of downstate casino licences, with notable opposition from some casino operators, poses a hurdle to iCasino legislation over the cannibalisation fears of land-based stakeholders. 

In Illinois, opposition from Video Lottery Terminal (VLT) operators is seen as a significant barrier.

However, if both New York and Illinois were to legalise iGaming over the coming years, they would represent a substantial portion (27% for New York and 17% for Illinois) of the estimated TAM for 2024. 

Assuming a conservative operator margin of approximately 25% on the additional TAM, this could translate to roughly $1bn in industry EBITDA by 2025.

This would account for approximately 30% of the combined industry’s estimated EBITDA for 2025, according to Morgan Stanley. 

Illinois is positioning itself as the nation’s third-largest legal sports betting market, even ahead of new legal offerings set to open in the coming months.

Though it has only seven live mobile sportsbooks, Illinois has typically been neck-and-neck with New Jersey for the second and third highest monthly handle totals in US sports betting. New Jersey was the third state to accept a legal single-game sports bet and has more than 20 statewide mobile operators.

In July, the most recent month Illinois has publicly released monthly revenue, the Land of Lincoln recorded just over $516m in handle compared to roughly $531m for New Jersey. In June, Illinois and New Jersey reported $628m and $633m in handle, respectively.

Illinois earlier this year eclipsed the monthly totals from Nevada, which for decades was the nation’s only legal single-game sports betting market.

New York, the nation’s fourth-most populated state overall and largest with legal mobile wagering, is far and away the nation’s largest sports betting market. It accepted more than $844m in legal sports in July.

Given its population, Illinois sports betting success is not surprising. It is the nation’s sixth-most populated state and home to its third-largest metro area, Chicago. It is the third-most populated legal sports betting state after New York and Pennsylvania.

Illinois routinely exceeds sports betting totals in Pennsylvania, which has a similar population. Pennsylvania recorded $336m in sports betting handle despite launching several years before Illinois and having a similar amount of legal mobile sportsbooks.

Illinois’ recent growth comes after a slow start exacerbated by the pandemic and its own policies.

The first retail books in Illinois opened days before the Covid-19 pandemic forced casinos and virtually all other public businesses to shut down. The state launched its first online sportsbooks in June 2020, but the in-person closures led to several months where bettors were effectively unable to place bets.

After businesses began to reopen, Illinois also reinstated a policy that required online bettors to first register in person at a brick-and-mortar casino. That meant a bettor in Chicago, for example, would have to drive more than four hours to register for the DraftKings Sportsbook at the Casino Queen in East St. Louis along the Missouri border.

In part due to the in-person registration requirement, only six mobile sportsbooks opened in the first two years with legal mobile wagering.

Chicago-based Rush Street Gaming, the brick-and-mortar division of the parent company for PlaySugarHouse and BetRivers sportsbooks, launched the state’s first in-person and online books. DraftKings, FanDuel, PointsBet, Caesars and Barstool Sportsbook opened in the following months.

BetMGM, the state’s seventh operating mobile sportsbook, launched in March of this year, shortly after the in-person registration requirement ended. With that mandate over, more books are set to open.

Hard Rock, Unibet and WynnBet have all applied to launch mobile sportsbooks in the state. Though officials have not given a go-live timeline, these books are hoping to go live by the upcoming Super Bowl as well as NCAA Men’s Basketball Tournament, perennially the two most-wagered upon sporting events in the country.

Meanwhile, Bally Bet is set to launch a mobile sportsbook, potentially in conjunction with a casino being built near the Loop in downtown Chicago. Bally’s is also set to open a retail book within the casino.

Circa, a smaller operator held in high regard by the sports betting community for its high limits for share bettors, is also set to launch in Illinois. Circa has previously only gone live in Nevada and Colorado.

While online sports betting makes up more than 90% of the state’s overall handle, Illinois is also set to see some of the most prominent retail books in the country.

FanDuel is working toward a late 2022 open for an in-stadium sportsbook at the United Center, home to the NBA’s Chicago Bulls and NHL’s Chicago Blackhawks. A DraftKings sportsbook at the Chicago Cub’s iconic Wrigley Field could open by next year’s MLB season.