Chicago Weighs Municipal Tax on Online Sportsbooks as Budget Pressures Mount

As the Chicago City Council debates ways to address a projected $1.2 billion budget shortfall, members are considering a new municipal tax on online sports betting. The proposal, which would follow a series of tax hikes at the state level, is part of a broader push to expand local revenue through gambling-related streams.

City Council Eyes Local Revenue

During a recent meeting, Council members discussed the current tax structure and potential negotiations with the state to retain more revenue.

Ald. Jeanette Taylor (20th) emphasized the urgency of action, especially in addressing illegal sweepstakes machines that saturate the city’s African-American communities.

But while passing legislation to regulate those machines would be challenging, taxing mobile sportsbooks would be a more politically viable and lucrative solution.

“People download them and gamble all the time. We should be able to get money off of them,” Taylor said.

As Taylor raised the question on a municipal online sports betting tax, Chicago Chief Financial Officer Jill Jaworski disclosed that Mayor Brian Johnson’s administration has already “done the analysis” on imposing a local tax on online sports betting platforms.

No further details are available on the size of the proposed tax. For reference, Chicago currently levies a 2% tax on gross gaming revenue from retail sports betting within city limits.

Estimates indicate that the city collects approximately $400,000 to $ 500,000 in annual revenue. Given that mobile sports betting accounts for over 90% of all betting activity, a tax on mobile platforms could generate millions for the city.

New Local Tax Would Follow State Hikes

A municipal tax would be another blow to mobile sportsbooks, which are already feeling pressure from the state’s recent policy changes.

In 2024, Illinois replaced its flat 15% tax rate with a progressive system based on revenue. That resulted in an increase from 15% to 40% for top platforms like FanDuel and DraftKings.

This year, Illinois lawmakers voted for another hike through a new two-tier tax structure. The law requires operators to pay $0.25 per bet on the first 20 million wagers. After that threshold, the tax rises to $0.50 per bet.

Operators quickly pushed back. The market leader, FanDuel, responded by announcing a $0.50 surcharge on all bets starting September 1. DraftKings and Fanatics followed suit at $0.50 and $0.25 per bet, respectively.

Others, such as BetMGM and Hard Rock Bet, took a different approach, implementing minimum wager limits. BetMGM imposed a $2.50 per bet requirement, while Hard Rock introduced a $2 minimum.

VGT Legalization Also on the Table

Online sports betting is not the only gambling proposal discussed among the City Council. Another highly debated revenue stream is video gaming terminals (VGTs).

VGTs resemble casino slots visually but are available at various retail establishments, including restaurants, bars, and other venues. Illinois legalized the machines in 2012 with the passage of the Video Gaming Act.

The legislation allowed municipalities to choose whether they would allow the machines, with Chicago being a notable holdout. However, City Council members are now pushing to change that.

Ald. Gilbert Villegas and Anthony Beale have proposed two ordinances. One would allow the machines at Chicago’s O’Hare and Midway Airports, and the other throughout the city.

Villegas’ proposal includes introducing up to 400 VGTs past the security checkpoints in the two airports. Meanwhile, Beale wants to allow the machines through the city, resulting in thousands of VGTs. The council members estimate that the machines could generate millions of dollars in annual revenue for the city.

However, Jaworski fears the introduction of VGTs would cannibalize slot revenue for Bally’s Chicago, which is currently under construction. The CFO cited an analysis that VGTs would bring in at most $10 million, which is four times less than what slots would generate.

Despite differing opinions on how to generate additional revenue streams for the city, there’s a consensus on one point: it needs them quickly.

Whether through a municipal tax on mobile sportsbooks, legalization of VGTs, or a combination of both, gambling is at the center of Chicago’s fiscal strategy.

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