FanDuel, the largest online betting operator in the United States, is set to introduce a transaction fee for its customers in Illinois.
Starting from July 1, 2025, players will face a $0.50 charge per bet. This decision comes in response to a new law passed by the Illinois State Legislature, which imposes additional taxes on sports betting.
This move marks the first instance where FanDuel has implemented such a fee anywhere in the world.
Peter Jackson, CEO of Flutter, FanDuel's parent company, expressed his disappointment with the new tax. "It is important to recognize that there is an optimal level for gaming tax rates that enables operators to provide the best experience for customers, maximize market growth and maximize revenue for states over time."
Impact on FanDuel Sports Bettors in Illinois
The decision to impose this transaction fee has several key effects:
- Impact on Casual Bettors: The fee, charged per transaction rather than as a percentage, will hit casual bettors the hardest. Those who place smaller, frequent bets will see a significant increase in their costs, which might change how often or how they place bets.
- Shift to Unregulated Markets: Customers might be tempted to turn to offshore betting sites that don't charge these fees and lack consumer protection. This could divide the Illinois market between legal, regulated operators and the unregulated black market.
- Regulatory Experiment: This situation serves as an important example in the U.S. sports betting world. States aiming to raise revenue through taxes and fees need to find a balance to ensure the legal market remains attractive. FanDuel's parent company, Flutter, hints at its strategy by saying they might drop the fee if Illinois changes its decision, showing how the company navigates these regulatory challenges.
Understanding the Illinois Transaction Fee
The Illinois Transaction Fee, part of a newly crafted $55.2 billion budget, introduces a per-bet tax on online sports wagers throughout the state.
This fee is layered atop the existing progressive tax system for sportsbooks. Specifically, sportsbooks will incur a $0.25 fee for the first 20,000 online bets each year, with the charge doubling to $0.50 for any additional bets beyond that number. This measure aims to generate approximately $36 million in annual revenue for Illinois.
The Sports Betting Alliance, an industry group representing major companies like DraftKings, BetMGM, and Fanatics, criticized the levy as a "crippling tax." They argue that it is both discriminatory and places a significant financial burden on businesses.
Background on Illinois Sports Betting Taxation
This new fee represents a further escalation in Illinois' approach to taxing sports wagering.
Just a year prior, the state established a progressive tax structure on sportsbook revenues. As of July 2024, this structure involves a sliding tax rate ranging from 20% for operators earning up to $30 million, to 40% for those exceeding $200 million. Unlike these revenue-based taxes, the latest fee is based solely on the volume of bets, irrespective of their value or outcome.
Reaction from Flutter CEO Peter Jackson
"We are disappointed that the Illinois Transaction Fee will disproportionately impact lower wagering recreational customers while also punishing those operators who have invested the most to grow the online regulated market in the state," Jackson said.
The company believes the introduction of the Illinois transaction fee will likely motivate some Illinois-based customers to bet with unregulated operators. "These operators do not contribute tax revenue to the state, will not collect the newly announced transaction fee, and do not offer the same levels of customer protection that regulated operators provide," noted Jackson.
He highlighted the potential impacts on Illinois gamblers and the broader market. “We are concerned that this fee might encourage customers to turn to unregulated operators who do not pay taxes or offer the same level of customer protection,” stated Jackson.
Impact on FanDuel and the U.S. Sports Betting Market
FanDuel holds a 43% share of the U.S. sports betting market and Flutter has pledged to remove this surcharge if the state revisits and repeals the decision.
This approach contrasts with last year’s response to Illinois’ tax increase, where Flutter opted not to pass costs onto customers. Instead, it cut local marketing and adjusted customer offers to alleviate the tax burden.
Financial Implications and Future Outlook
As analysts project, the new Illinois tax may reduce Flutter's core profit by around $74 million annually without counteractive measures.
Despite these challenges, Flutter anticipates a 35% growth in group-wide profit this year, driven significantly by growth in the U.S. market. Jackson emphasizes the need for optimal gaming tax rates that enhance customer experience, grow the market, and maximize state revenue. The evolving taxation landscape in Illinois will be a critical factor to watch in the coming months.
By making this statement, FanDuel, the biggest sports betting company in the U.S., is setting an example for other companies to follow. However, it's unclear if these fees will lead to more people betting in unregulated markets or choosing companies that don't charge this fee.
