Illinois’ Per-Bet Gambling Tax Backfires, with Michigan Keeping Note

Betting tax hurts businesses, and it virtually always gets passed from sportsbooks to customers. Though while state authorities raise taxes or change the levy frameworks to squeeze sportsbooks and thus bettors too, none have had such a negative impact as Illinois’ per-bet tax that was introduced last July. In fact, it has hurt revenue so much that the Illinois sportsbooks recorded 4 months of continuous decline in betting. Considering September through December are some of the busiest months for bookmakers, this was a low blow for all involved.

If you haven’t heard of it before, basically this is a tax on every single bet, and Illinois sportsbooks passed it directly to players. Imagine placing a bet at DraftKings or FanDuel, and regardless of how much money you place, you have to pay a $0.50 surcharge from your stake. This controversial tax, on individual sportsbooks, looks like it may be pulled back in the middle of this year, at least in Illinois. Rumour has it that Michigan is thinking of making a copycat tax, throwing more attention on the contentious levy.

Illinois Per Bet Sports Betting Tax Details

There was no precedent for the tax, it was a first for sports betting, and was implemented to help boost Illinois’ state budget. The plan was to introduce a tax on every single bet placed, and that it would generate around $40 million in revenue for the state. That is not instead of the tax framework before, which had a progressive rate of 15% up to 40% depending on volume. The base operator tax would have an extra per-bet tax charged on top, which would start from 25 cents per bet and go up to 50 cents.

• 20 cents for first 20 million wagers (annually)
• 50 cents for all bets after the first 20 million (annually)

Just like with most taxes, levies (or even tariffs), the operators passed these additional charges onto the Illinois bettors. But that was not the only reaction to these charges. Because these were fixed charges, without regard to the size of the bet in question. A $5 bet with a 25 cent charge represents a 5% tax on that single bet. But if the stakes were $100, then the percentage of the 25 cent charge drops to a mere 0.25%. Bigger bets are much better for sportsbooks in that system, and so many Illinois sportsbooks increased their minimum bet amounts too.

Members of the following sportsbooks were suddenly hit with the following:

• 50 cent surcharge on every bet: DraftKings, FanDuel, Fanatics, BetMGM
• 25 cent surcharge on every bet: Caesars, bet365 (on bets under $10)
• Raised minimum betting stakes: theScore ($1 minimum), Hard Rock Bet ($2), BetMGM ($2.50), BetRivers ($5)

This hit casual bettors and low stakes bettors the hardest. Bigger books that kept their low minimum betting stakes generally levied the higher per-bet tax, whereas the books that brand themselves as “sportsbooks with low entry stakes”, had to raise their minimum bets to leverage the lower per-bet tax.

Now just to make it clear, this tax is not applied onto your winnings, nor is it deducted from your stake. It is a fee you pay for placing a bet, charged on top of what you would stake. So, if you were to place a $10 bet at odds of +100, you should be looking at $20 returns normally. With this tax, you have to pay the $10 stake and a $0.50/$0.20 extra charge. The odds remain the same, and if you win, you will get your $20. But if you consider that the extra 50 cents could add +$1 to the returns, you are losing around 2.5% to 5% just from the tax alone (in that scenario). Factor in the sportsbook juice, and the value for money just drops off tremendously. It doesn’t even go to the house edge either, it is a tax that benefits neither you as the bettor, nor the sportsbook.

Revenue Drop in Following Months

The figures in the following months, from September through December, showed a massive downtrend in sports betting in the state of Illinois. These are the months when the NFL betting piles up, with the regular season coming to a boiling point. Also, in those months, the European soccer betting season takes off, with Champions League, Premier League, La Liga, and other important leagues getting started. And the NBA betting season kicks off in October, to much anticipation and delight of the fans.

But instead of an uptick, Illinois recorded a -15% year on year drop in September and November, a -16% drop in October, and a crippling -25% drop in December. Approximately, there were just under 28 million fewer bets in 2025 than there were in 2024 during those same months. In tax revenue terms, that was $6.9 million less than the state expected across the last 4 months of the year.

Riskier Gambling Behaviors

The handle declined only 7% in December, but when compared with the number of pregame bets placed, which dropped around 40%, it indicates that Illinois bettors placed fewer bets but staked more money on their wagers. To mitigate the tax impacts on their betting strategies, many Illinois sports bettors decided to cut back on their volume of bets, and instead put their money into fewer selections. It would practically kill off any arbitrage or hedged bettors’ strategies. And in terms of value betting, Illinois made it a whole lot more difficult for bettors to find wagers with potentially good ROIs.

The data could also be read as a sign that bettors were forced to increase their wager size, to reduce the tax cutout from their profits as much as possible. Placing higher stakes bets comes with a lot more risk, and you could say that these bettors were forced into scenarios where they were compelled to risk more money because of the per-bet tax. That alone is a very dangerous practise, as bettors can lose bigger chunks of money quicker and their tolerance to risk is tipped out of balance.

Fightback from Lawmakers in Illinois

At the beginning of February, House Bill 5143 was introduced to solve the problem. If it is approved, this bill will end the per-bet tax on all online sports bets on July 1, 2026. The hope is that the repeal on the per-bet tax will bring more volume back to Illinois sportsbooks. Volume that leaked into alternatives, such as prediction markets and illegal black market betting sites. Interestingly enough, prediction markets use a similar commission model to what the betting surcharges look like. It is another similarity between sportsbooks and prediction markets.

When buying contracts for your sports-related predictions, platforms like Coinbase, Kalshi and Polymarket charge a minimal fee, taken on top of your stake. However, they don’t apply juice to the sports related markets, so the resulting value is closer to what the sportsbooks offer – if not slightly better. Even sportsbooks have caught onto the popularity of these alternative betting platforms, launching their own prediction markets – like DraftKings, FanDuel, and Fanatics.

However, the “sportsbook brand prediction markets” don’t have exactly the same functions as originals like Kalshi or Polymarket. Those are true peer to peer betting exchanges, which use user liquidity to pay out winning bets. The Illinois Gaming Board has clashed heads with these prediction markets on multiple occasions, and the sudden drop in sports betting revenue added insult to injury.

Now, lawmakers are confident that the controversial per-bet tax can be repealed, and they hope to restore the Illinois sports betting industry, which was launched in 2020.

Michigan Contemplating Copy Cat Law

But that may not be the end of these unique sports betting levies. Because Michigan’s Governor Gretchen Whitmer is considering using the per-bet tax in her upcoming sports betting taxation reforms. A 8% online casino tax increase and progressive taxation frameworks for sports betting are also on the table, but the most eye-catching measure is the per-bet tax. There are, naturally, lots of opposers to these potential tax schemes, and industry insiders have pointed to Illinois’ resulting drop in sports betting activity as a valid argument to push back on the potential per-bet tax in Michigan.

If Illinois can move quickly enough and repeal the per-bet tax, it could greatly impact Michigan’s current agenda. The experiment would have been in place for just over 1 year, but it already caused great harm to the Illinois gambling scene. Should Michigan go ahead and introduce the tax regardless, they are the bigger sports betting state here, and it could prompt larger repercussions in the industry. Right now, the signs point towards these taxes getting scrapped completely – a failed experiment that could serve as a good precedent for any future proposals that would bring something similar back.