The Sports Betting Alliance has filed a lawsuit against the city of Chicago, claiming its new tax and municipal licensing requirements on online sportsbooks operating within the city limits are unconstitutional and could cause operators to shutter their operations.
A Taxing Issue
Illinois has imposed one of the most aggressive tax escalations on mobile sportsbooks in the nation. After originally instituting a 15% tax on all sportsbooks, Prairie State legislators increased that to a tiered system where the smallest revenue-producing sportsbooks would pay a 20% tax, scaling up to a high of 40% for the most popular sportsbooks.
But this past year, the Illinois legislature found a new way to generate even more taxes from its licensed sportsbooks by implementing a per-bet tax of 25 cents on a volume of under 20 million wagers and 50 cents per transaction on volumes of over 20 million.
The larger sportsbooks, DraftKings and FanDuel, were naturally the most adversely impacted by the 50 cents per bet fee and decided to pass that tax on to their customers. Some smaller sportsbooks passed a 25-cent per bet charge off, while many of the remaining sportsbooks raised their minimum bets. Many have vowed to rescind the fees if the Illinois legislature does the same.
Understanding this backdrop, the largest city in Illinois, Chicago, unilaterally decided to impose its own fees for any online sports bet transacted within the Windy City. The new budget that went into effect on January 1st now imposes a 10.25% tax on revenue generated from those bets. Moreover, the Chicago City Council also voted to impose a licensing fee.
Enough Is Enough
These new taxes and fees have caused the Sports Betting Alliance, which includes industry heavyweights DraftKings, FanDuel, BetMGM, and Fanatics, to file a lawsuit in Cook County against Chicago, asserting that its new taxes and fees are “invalid and unconstitutional” under Illinois law.
“The State—not the City—has sole authority to license and tax online sports wagering in the State of Illinois,” the SBA states in the complaint. “The Illinois Constitution reserves authority over licensing for revenue and income-based taxation to the State unless expressly delegated. The Illinois General Assembly has never authorized the City to impose licensing fees or income-based taxes on online sports wagering.”
New Budget Takes Effect With No Licenses Issued
The new budget took effect on Thursday, New Year’s Day, and the sportsbooks are uncertain whether they are technically in compliance due to the City not issuing any of the required licenses to operate in the Windy City.
“Despite prior assurances that licenses could and would be issued on December 29, 2025, as of the time of filing this Complaint, the City of Chicago has not issued the required municipal license to any SBA member or to its master license holder,” the SBA said in the filing. “Nor has the City provided a formal determination as to whether any SBA member will receive a City license for online sports wagering by the December 31, 2025, deadline.”
The SBA previously requested that Chicago Mayor Brandon Johnson delay the new tax and licensing fees, but that request went unanswered, prompting the SBA to file a lawsuit asking the courts for a delay. A temporary restraining order is in effect, but if the SBA fails to convince the courts that Chicago’s taxes are unconstitutional, it may lead to those sportsbooks terminating operations in the state’s most populated city.
