Are State Lawmakers Driving Sports Bettors Back to Black Market With High Taxes?
Since legal sports betting is so popular in the US, many state legislators are still trying to increase taxes in order to get a bigger share of the market. According to a well-known consumer research agency, state governments' seemingly endless tax increases on legal sports betting may be pushing some customers back to the illicit market.
Justin Leventhal, a senior economist at the American Consumer Institute, claims that state legislatures' high tax laws on online sportsbooks are tilting the playing field against customers in an opinion piece that was published in The Hill. He argues that by providing worse odds than offshore, unregulated, untaxed internet bookies, the numerous licensed sportsbooks in the 33 states and Washington, DC, where online sports wagering is permitted, impose their heavy tax burden on customers. Online sportsbooks that are subject to high taxes have likewise reduced their incentives and promotions.
"If adults are free to gamble, then they should be free to do so without punitive tax schemes that drive up costs and push bettors back toward the black market,” Leventhal opined.
“A modest, predictable tax structure gives operators certainty, encourages competition, and leaves consumers with better odds and lower costs. It also provides states with a sustainable source of revenue without driving bettors to untaxed offshore sites where they can easily be taken advantage of,” Leventhal continued.
Tax Increases on Sports Betting
In June, Illinois increased its effective tax on online sportsbooks for the second time in a single year, which prompted Leventhal to write this piece.
Illinois imposed a progressive tax in 2024, raising the market leader FanDuel's effective rate from 15% to 40%. Then Illinois lawmakers imposed a 20-cent per-bet fee earlier this year. After the bookies process more than 20 million bets annually, the fee rises to 50 cents per wager.
This year, New Jersey also increased its levy on online sports betting. Online sportsbooks are required to give the state 19.75% of their net wins as of June. Prior to the tax increase, Trenton received 15% of the profits from online sports betting. Online bookmakers only shared 13% with the state when sports betting was initially authorized in New Jersey.
This year, Louisiana also raised its sports betting levies from 15% to 21.5%. On August 1, the new rate went into effect.
Investors have been told by gaming analysts that the majority of online sportsbook companies will reduce promotions in order to offset the higher taxes. Although it might benefit stockholders, it is most definitely not in the best interests of customers.
Contradictory Effects
The increased levies on internet sports wagerers in Illinois haven't appeared to deter people from using offshore sports betting sites just yet. The total amount of money wagered on online sports betting, or handle, increased from $7.14 billion in 2024 (January through July) to $8.25 billion in 2025 (seven months). That is an annual growth rate of 15.5%.
The situation is different in New Jersey.
Online bookmakers have accepted wagers totaling $7.2 billion through August. Online sports wagering totaled over $7.82 billion at this time last year, a difference of about $616.1 million. In January 2022, New Yorkers started wagering on sports online.
"If bettors feel squeezed by bad odds, fees, and disappearing perks, they may return to the unregulated platforms that are not burdened by punitive regulations,” Leventhal continued. “Pushing people back to the illegal market undermines consumer protections, cuts into state revenues, and defeats the very purpose of legalization.”
The goal of the American Consumer Institute is to advance consumer welfare via public policy and education.
