On 26 May 2024, the Illinois Senate approved a significant gambling tax hike on sports betting despite pushback from several democrats within the state government and lobbying activities from gambling brands. The new bill sees a gambling tax hike of online sports betting to 40%, up from the 15% implemented when betting launched in the state in 2020. The new tax structure is progressive, starting at 20% for the lowest-earning companies and up to 40% for the high earners, in increments of 5%.
Defending the decision, the State Governor, J.B. Pritzker, said the state is simply getting its fair share of tax revenues from the lucrative gambling industry. Given the high revenues raised to this point, he seems confident that operators will remain in Illinois.
Proponents from the gambling industry have criticized the decision and are largely opposed to the general gambling tax hikes in the US. While gambling companies recognize the necessity of taxes and tax monies allocated towards problem gambling and the general good of society, they criticize higher rates that make it less commercially viable to run their businesses. An unwanted side-effect of gambling tax hikes in the US is that they open the door for offshore operators who are subject to lower tax regiments. The tax discrepancies create unfair competition where overseas casino operators can offer more lucrative promotions, higher returns for players and unique experiences through blockchain-based crash gambling sites and games like JetX and Cappadocia. These operators are left with more capital to provide superior products than American operators.
Illinois is not the only state with increased gambling taxes to improve state budgets. Ohio doubled taxes paid by sportsbook operators from 10% to 20% just three months after online sports betting launched in 2023. A trend is developing for gambling tax hikes in the US, making it difficult for American sportsbooks and opening the door for offshore operators, including crypto casinos.
Experts like gambling industry analyst Steve Ruddock believe that the industry is partly to blame for the increases. Operators like DraftKings and FanDuel present themselves as earning vast amounts of money to please investors and often overestimate their success. So, authorities want a larger share of that income.
It’s also worth noting that operators opened the door to higher tax rates when they accepted the 51% rate in New York to enter a highly lucrative market. This rate has enabled the state to collect $1.9 billion in taxes over three years. Given this high figure, it’s unsurprising that we’re experiencing a general gambling tax hike in the US.
The more this happens, the more significant its impact on an industry that has been enjoying success since the Supreme Court ruling of 2018, which removed the ban on sports betting and allowed states to make their own decisions.
New Jersey Senator John McKeon has already introduced a bill to increase the state's online gambling and sports betting taxes to 30%. Currently, the rates are 15% for online gambling and 13% for sports betting. The bill has been referred to the Senate State Government, Wagering, Tourism & Historic Preservation Committee. If enacted, it will take effect on January 1 of the first year after the enactment.
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Raising taxes to 30% would pressure casino and sportsbook operators in New Jersey. The rate would be one of the highest for sports betting in the country after New York's 51% and Pennsylvania's 36%. It’s also a major change for online casino operators in the state. They currently pay one of the lowest tax rates, but the changes would elevate New Jersey above other states, including Connecticut, Michigan, and West Virginia.
Within the industry, tax rises have impacted operators' decisions. For example, in Illinois, high tax rates caused MGM Resorts International and Wynn Resorts to decide against investing in casino premises in Chicago. However, the real impact is not on major industry players but on smaller operators and the people using online casinos and sportsbooks.
Increases in taxes must come from somewhere. So, the standard of products some operators provide will likely diminish, with less impressive promotions, reduced RTPs, and less beneficial sports betting odds.
These changes will adversely affect the player experience and could lead people to look for a better experience at offshore sites that are not regulated in the US. These international sites offer enhanced promotions, more attractive RTPs and betting odds, and unique gaming experiences like crash gambling games.
Many offshore sites are also crypto casinos, which have benefits. The main attraction of these sites is the ability to add funds in cryptocurrencies, such as Bitcoin and Ethereum. So, although these sites do not provide the regulated player protections of US-based operators, they offer the transparency associated with cryptocurrencies, which is a positive for many players.
Crypto sites also often provide access to a more extensive catalog of games, including so-called crash games. These fast-paced games involve betting on a multiplier and cashing out before the game crashes, where many players participate together in the same game, making it a more social gaming experience.
If the trend for tax hikes continues and adversely impacts the player experience, the challenge for US gambling operators will become more acute. This is especially likely to happen as more players see the appeal of crypto casinos, which include anonymity, transparency, easy access from any location, low fees, and enhanced transaction speeds.
Crypto casinos face their challenges. The most significant challenges are the lack of cryptocurrency regulation and the volatility of cryptocurrency markets. The legal position of cryptocurrencies is different across the world, which makes it more complex.
However, there is still an appetite for using cryptocurrencies, including online gambling sites. The combination of crypto casinos and crash games is an exciting development in gambling. If regulatory challenges can be overcome, these technologies will be an even more significant threat to online gambling companies in the US, especially smaller operators.
Whether the trend of tax increases continues will determine exactly how significant this threat becomes. If more states decide to follow Ohio's recent example and the likely changes in New Jersey, the player experience could be adversely altered. If this happens, players could look at offshore sites, including crypto casinos, for improved bonuses, RTPs, and sports betting odds.
