A new phase in the standoff between the City of Chicago and sports betting operators began this month as a 10.25% local tax on sportsbook revenue officially took effect. The levy was included in Chicago’s amended city budget and became effective on 1 January, despite Mayor Brandon Johnson declining to formally sign the measure while also opting not to veto it.
Johnson confirmed the budget would stand, stating that blocking it would risk a government shutdown at a time of heightened economic pressure for residents. Alongside the sports betting tax, the budget also introduced several other revenue measures, including new levies on social media amusements, alcohol, and checkout bags.
Operators push back through the courts
The local tax adds to an already heavy fiscal burden on Illinois sportsbooks. At the state level, operators are subject to a graduated sports betting tax ranging from 20% to 40% of adjusted gross revenue, as well as a per-wager fee introduced in last year’s budget.
Ahead of the Chicago tax taking effect, the Sports Betting Alliance filed a lawsuit in Cook County court challenging the city’s authority to impose its own levy. The alliance represents major operators including Bet365, BetMGM, DraftKings, Fanatics, and FanDuel.
In its complaint, the alliance argued that Chicago is exceeding its constitutional powers, claiming that the Illinois Constitution does not allow a home rule unit to impose taxes or licensing requirements on sports betting without explicit authorisation from the state legislature. Although the operators initially sought an injunction to block enforcement, that request was withdrawn after the city issued last-minute operating licences.
State lawmakers move to curb local taxation
The dispute has also triggered legislative responses in Springfield. State Representative Dan Didech, chair of the House Gaming Committee, introduced House Bill 4171, which would prohibit municipalities from creating their own sports betting taxes.
Didech has argued that when Illinois legalised sports betting in 2019, lawmakers never intended to allow cities to impose additional layers of taxation. He warned that Chicago’s approach could push consumers toward illegal markets while ultimately reducing state tax revenue.
Separately, State Senator Patrick Joyce filed legislation proposing to reduce Chicago’s share of state income tax distributions based on how much revenue the city generates from its sports betting levy. Illinois lawmakers are set to reconvene on 14 January, with the issue expected to feature prominently in upcoming debates.
Rising tax pressure across Illinois
Illinois has sharply increased sportsbook taxes over the past two legislative sessions. In 2024, the state replaced its flat 15% sports betting tax with a tiered system ranging from 20% to 40%, depending on revenue. That was followed by the introduction of a per-wager tax, prompting operators to adjust pricing and promotional strategies to offset the additional costs.
At the National Council of Legislators from Gaming States winter conference last month, Illinois Representative Jehan Gordon-Booth cautioned other states against aggressive tax hikes, warning that escalating financial pressure can undermine the long-term viability of regulated sportsbooks.
What it means for the market
For operators, Chicago’s new tax compounds an already challenging cost environment and reinforces concerns about fragmented regulation at the local level. If municipalities are allowed to impose their own levies, sportsbooks could face a patchwork of taxes and licensing requirements that complicate compliance and squeeze margins.
For policymakers, the dispute highlights the tension between local revenue needs and maintaining a stable, competitive statewide betting framework. State lawmakers now face a decision on whether to rein in municipal authority or allow cities to experiment with their own tax models.
More broadly, Illinois is emerging as a test case for how far sports betting taxation can be pushed before it begins to erode market sustainability. The outcome of the Chicago lawsuit and related legislation could influence how other US jurisdictions approach local involvement in sports betting regulation and taxation going forward.