The online gambling market in the U.S. has experienced a huge amount of change in the last decade. The legalization of online sports betting is happening across multiple states. Consumers are now able to access a wide range of platforms and betting experiences. This has resulted in a considerable amount of revenue from the industry. In reaction to this rise, many states are enforcing new tax laws that operators must abide by. So let’s take a look at these tax laws and how they are reshaping the online sports betting market.
From Illinois to New York, states are now taking action when it comes to taxing online sports betting. These decisions are set to boost the state’s economy while also testing the resilience of the industry.
A shock to the system in Illinois
Illinois serves as the most immediate and dramatic example. As of July 1, 2025, the state replaced its flat 15% gross revenue tax with a progressive, per-wager tax structure. Now operators must pay $0.25 per bet for the first $20 million in monthly adjusted revenue and $0.35 per bet thereafter.
It didn’t take long for major sportsbooks to respond to this. Fanduel and DraftKings, two of the biggest players in the market, announced that they would begin charging a $0.50 “wager fee” starting September 1. They are passing the cost directly to consumers. The stock market also responded negatively to this change. DraftKings saw its share price dip after the tax change was announced. FanDuel’s parent company, Flutter Entertainment, also experienced a stock price drop too.
Ripples across the country
It’s not just Illinois’ gambling market experiencing changes to its tax laws. There are a number of other states that are eyeing higher taxes to boost revenue from this booming sector. This includes:
- New York: They have maintained a steep 51% tax on gross gaming revenue (GGR).
- Louisiana: The state recently voted to raise its online sports betting tax rate from 15% to 21.5% with new funds designated to college athletics.
- Ohio: They are exploring the possibility of a tax hike from 20% to 40% under Governor Mike DeWine’s administration.
- Massachusetts, Pennsylvania and New Jersey: All three states are revisiting their tax structures, either by increasing rates or reassessing how promotional bets are taxed.
The operator dilemma
Sports betting is often seen as an extremely profitable business. However, the reality is much more complex than that. Operators will typically hold around 9% of the money wagered. This means that even small tax hikes can have a significant impact.
Faced with mounting taxes, sportsbooks have a few options:
- Pass costs to users: Instead of absorbing the tax hit themselves, operators will shift the burden to consumers. This has already been seen in Illinois with FanDuel and DraftKings.
- Reduce promotions: Operators will start to scale back popular promotions like odds boost, risk-free bets and deposit matches.
- Exit high-cost markets: Smaller who are unable to achieve scale or absorb elevated costs will choose to exit markets with higher tax structures. There are already a number of smaller and lesser-known platforms that have quietly withdrawn from states like New York and Pennsylvania, where operational costs outweigh potential profits.
The impact on consumers
For sports betting enthusiasts, these tax changes can translate to a noticeably different experience. The most immediate effect is the introduction of new fees and higher costs per wager, as seen in Illinois. Bettors may find themselves paying more than just to place a bet, which could end up dampening overall participation.
Additionally, the reduction of promotions and bonuses could make the market a lot less attractive. Especially as many casual bettors rely on these to boost their bankrolls to try new sportsbooks. Promotions have played a major role in acquiring and retaining customers, scaling back risk and reducing user engagement and satisfaction.
As costs rise for operators and are passed down, consumers may also face fewer options as smaller operators exist in high-tax states, limiting competition and choice. That makes it even more important to compare betting sign-up deals across sportsbooks to find the best value offers and promotions available.
The risk of an underground shift
There is a growing concern that as regulated markets become more expensive for both operators and consumers, some bettors might seek alternatives outside legal frameworks. Higher taxes and fees could push a segment of the market towards unregulated or underground betting platforms, which offer no consumer protections or legal recourse.
This shift would completely undermine the very goals states had in legalizing and regulating sports betting in the first place. This includes ensuring consumer safety, generating transparent tax revenue and combating illegal gambling activities. This risk serves as a cautionary tale for policymakers who are aiming to balance revenue generation with market sustainability.
A tipping point for state policy
The wave of tax hikes signals a critical moment for state legislators. On one hand, the booming online sports betting market presents an opportunity to raise substantial funds for public services and initiatives like education, infrastructure and sports programs. On the other hand, overburdening operators with taxes can stifle innovation, reduce market competitiveness and alienate consumers. This shift could end up destroying the industry as we know it.
Policymakers will need to carefully calibrate tax rates to sustain a healthy ecosystem. One that encourages new entrants, fosters competitive promotions and ensures operators can thrive while contributing to the state.
A market in transition
The online sports betting market is at a crossroads, not just in the U.S but around the world too. Rapid legalization and growth have created new economic opportunities, but also challenges. Tax laws will continue to evolve, shaping the competitive landscape and consumer experience in profound ways.
For operators, agility and strategic adaptation are now more important than ever. For consumers, navigating a shifting market means paying attention to new fees and fewer promotions while enjoying the convenience of legal and regulated platforms.
In the end, the future of online sports betting will depend on finding a balance between state revenue goals, operator sustainability and consumer satisfaction. As states experiment with tax policies, the industry’s ability to innovate and respond will define its next chapter.
