Sports Betting Tax Hikes: What They Do to Margins

The Short Answer

State tax increases reduce sportsbook profit sharply because the tax is charged on revenue before an operator pays for marketing, product, payments, staff and promotions. In 2025, New Jersey, Maryland, Louisiana and Illinois raised taxes on online sports betting, according to the National Conference of State Legislatures (NCSL). New Jersey moved from 13% to 19.75% of gross revenue. Illinois added a per-wager tax of $0.25 on the first 20 million online wagers each fiscal year and $0.50 on each wager after that.

This article takes the New Jersey statute and the Illinois Gaming Board’s guidance, adds NCSL’s summary of other states, and then works through fictional examples to show the arithmetic. The central point is leverage. When an operator keeps only a thin slice of each revenue dollar, a rate increase of 6.75 percentage points can remove more than half of the profit in the illustrative case below, while a per-wager fee weighs far more on small bets than on large ones. Facts are as of October 2026, the worked examples are hypothetical rather than any company’s results, and none of this is investment advice.

Why Gaming Taxes Matter to Sportsbooks

To read a tax change, start with the base it is charged on. A sportsbook’s gross gaming revenue (GGR) is the amount wagered, called handle, minus the winnings paid back to bettors. Hold is GGR divided by handle. Many states then tax some version of that revenue after deductions such as promotional credits, which is why the definition of the tax base differs from state to state. Our explainers on how sportsbooks make money and on GGR and NGR cover those definitions in detail.

Most states charge a percentage of revenue. NCSL reports that most states tax sports betting revenue at 10% to 20%, with Iowa and Nevada at 6.75% and New Hampshire, New York and Rhode Island at about 51%. States also differ in how they build the tax: Arkansas and Illinois use graduated rates that rise with revenue, while Kentucky, Louisiana and Massachusetts, among others, tax mobile betting at a higher rate than retail betting.

Why do rates move? NCSL says Maryland raised its mobile rate to help close a budget gap, and Louisiana tied its increase to a fund for student-athletes. InGame reported that the Ohio Senate’s chief legal counsel described gaming as a ripe area for future taxation as budgets tighten, while operators argue that higher taxes force fewer promotions and tighter odds. The business question is simply how much of each revenue dollar is left after the tax, and that depends on the rest of the cost structure.

How the 2025 Tax Changes Work

New Jersey. P.L. 2025, c.66, approved on June 30, 2025 and effective July 1, 2025, raised the Internet casino gaming tax, the Internet sports wagering tax and the daily fantasy sports operating fee from 15%, 13% and 10.5% respectively to 19.75%, according to the bill’s statement. For online sports wagering, the move from 13% to 19.75% is an increase of 6.75 percentage points, or about 51.9% in relative terms.

Illinois. The Illinois Sports Wagering Act, 230 ILCS 45/25-90(d-7), imposes a wager tax on each wager placed over the internet or through a mobile application, beginning July 1, 2025. The Illinois Gaming Board says the tax is $0.25 per wager for the first 20,000,000 wagers in a fiscal year (July 1 to June 30) and $0.50 per wager above that. It is in addition to other taxes, it does not apply to in-person wagers, it accrues when the bet is placed regardless of the outcome, it applies to bets placed with bonus credits, and a parlay counts as one wager. NBC Chicago reported that officials hoped to raise more than $36 million a year from the measure, citing multiple reports.

Maryland and Louisiana. NCSL reports that Maryland raised its mobile sports betting tax to 20% from 15% and Louisiana raised its online rate to 21.5% from 15%. InGame reported that the Louisiana change took effect August 1, 2025, a compromise from the 30% some lawmakers had sought.

Two formulas show how these changes reach the income statement. The first is the simple revenue tax:

The second is the per-wager fee, which does not depend on revenue at all:

where taxable revenue is the amount the state taxes (defined by each state), the tax rate is the statutory percentage, wagers is the number of individual bets, and the fee is $0.25 or $0.50 in Illinois.

What Higher Taxes Mean for Operators

Consider a fictional operator with $100 million of taxable revenue in a year. At 13%, the tax is $13.0 million. At 19.75%, the tax is $19.75 million, so the tax bill rises by $6.75 million.

Now add the rest of the cost base. Suppose all other costs, including marketing, product, payments and staff, are $75.0 million. Before the increase, profit is $100.0 million minus $13.0 million minus $75.0 million, or $12.0 million, a 12% margin. After the increase, profit is $5.25 million, a margin of 5.25%. A 6.75-point tax increase removes 56.25% of profit in this illustration, because the extra tax comes straight off the bottom line unless costs fall or revenue rises.

Operators have three levers. They can cut promotions or marketing, adjust pricing, meaning the margin built into odds, or accept lower profit. InGame reported that a FanDuel executive, speaking at a legislators’ conference in July 2025, argued that mitigation would mean fewer promotions and worse odds for customers, and that industry data showed about $1.55 of profit for each $100 wagered. That is an industry claim made in a policy debate, and it has not been independently verified here. InGame also reported that operators in Illinois added surcharges to wagers in response to the per-wager tax.

The effect on states depends on behavior. If operators cut promotions, handle could grow more slowly, which may offset some of the revenue the state expects. Whether that happens is an empirical question that official data will answer over several years; no verified figure yet separates tax effects from other drivers.

Comparing Rates Across States

After the 2025 increases, online rates in New Jersey, Maryland and Louisiana sit at or above 19.75%, the upper end of the 10% to 20% range NCSL describes as typical for most states, and Illinois added a per-wager fee, while a group of states remains far higher at about 51%. The table summarizes the changes verified for this article. Each state defines its tax base differently, so the percentages are not directly comparable as measures of burden.

The per-wager structure differs from the others in kind. Take a fictional bet with an 8% hold. On a $10 average stake, expected revenue is $0.80, so a $0.25 fee equals 31.25% of it and a $0.50 fee equals 62.5%. On a $50 stake, expected revenue is $4.00, so the same fees equal 6.25% and 12.5%. A flat fee is a heavier burden on low-stake wagering, which helps explain why operators in Illinois reacted with surcharges.

For a larger frame, state markets with 51% rates, which NCSL reports for New York (see New York sports betting revenue), are a different economic proposition from a 20% market, because the state takes about half of the taxed revenue and operators compete for what remains. Stated rates also say little without the revenue base; Pennsylvania gaming revenue includes derived effective tax ratios for a state market.

What the Math Does Not Show

The fictional examples isolate one variable. Real operators differ in scale, product mix, customer behavior and how a state defines taxable revenue, including whether promotional credits are deductible. A 13% to 19.75% change would not cut profit by exactly 56.25% at any actual company.

The examples also ignore federal and local taxes, licensing fees and the possibility that a higher tax changes customer behavior or handle. Hold swings from one month to the next, so a year with unusually good customer results can mask a tax change, and the reverse is true as well. Illinois adds a second trap: the per-wager tax is charged on every bet regardless of outcome, so a bettor’s bonus bet or a losing parlay still counts, as the Illinois Gaming Board explains.

Finally, statements by industry executives and by lawmakers are advocacy in a policy debate. Only audited company results and regulator reports can show the realized effect, and those will lag the changes by quarters. Figures here come from statutes, a regulator and the cited media reports as of October 2026.

Key Figures and Definitions

The table lists the main verified figures and the fictional example result. GGR is handle minus winnings paid; hold is GGR divided by handle; taxable revenue is whatever the state defines as the base; a percentage point is the simple difference between two rates.

Related Analysis

To see how a tax sits inside a sportsbook’s revenue, read our explainer on how sportsbooks make money, then the definitions in GGR and NGR. For a company-level view of how reported results reflect costs and taxes, see DraftKings’ second-quarter 2026 results. The next natural question is how each state’s revenue data shows the effect over time, which regulators publish on a regular schedule.

Sources & References

• New Jersey Legislature — P.L. 2025, c.66 (A5803), approved June 30, 2025
• Illinois General Assembly — 230 ILCS 45/25-90 (Sports Wagering Act, taxes)
• Illinois Gaming Board — FAQs on New Statutory Sports Wager Tax, June 17, 2025
• National Conference of State Legislatures — It Pays to Play: Sports Betting (updated February 2, 2026)
• InGame — States Not Done Mining Gambling Taxes, July 14, 2025
• NBC Chicago — New Illinois taxes to target sports wagers, June 2, 2025