FanDuel to Charge a 50-Cent Transaction Fee in Illinois: What Are the Consequences and Issues?

(Un)Expected Turn of Events

Under the 2026 budget, awaiting Governor Pritzker’s signature, sports betting operators in Illinois will be taxed under a new model. They’ll pay 25 cents per bet up to $20 million in annual handle and 50 cents per bet beyond that threshold. Set to take effect July 1, this system replaces the progressive model introduced just a year ago.

In practice, this means FanDuel and DraftKings are likely the only operators facing the 50-cent rate, as they were the only ones to surpass $20 million in Illinois last year. Deutsche Bank analysts estimate FanDuel would owe an additional $74.2 million in taxes under the new system, while DraftKings would pay $67.9 million more. This pushes their pro forma tax rate from 36% to over 51% – the highest among states with legal sports betting.

Given that operators have been increasingly vocal in discussions with regulators, it was clear from the start that they wouldn’t shoulder the full tax burden alone. The question was whether they’d pass it to players transparently or not. Now, things are clearer.

FanDuel announced in a press release a new 50-cent transaction fee per bet placed on its Illinois platform, effective September 1. The company noted that if Illinois reverses its decision, the fee will be immediately removed.

Peter Jackson, Flutter CEO, commented: “It is important to recognize that there is an optimal level for gaming tax rates that enables operators to provide the best experience for customers, maximize market growth and maximize revenue for states over time. We are disappointed that the Illinois Transaction Fee will disproportionately impact lower wagering recreational customers while also punishing those operators who have invested the most to grow the online regulated market in the state. We also believe the introduction of the Illinois Transaction Fee will likely motivate some Illinois-based customers to bet with unregulated operators. These operators do not contribute tax revenue to the state, will not collect the newly announced transaction fee and do not offer the same levels of customer protection that regulated operators provide.”

What the Transaction Fee Means and Its Consequences

FanDuel’s swift, decisive, and transparent response aims to show that Illinois crossed a line operators can’t accept. Companies operating in Illinois must adapt to the new reality to make their presence viable. However, FanDuel’s approach and communication had a deliberate purpose.

To grasp the full picture, we need to consider this on multiple levels:

FanDuel Hardens Its Stance

When last year’s Illinois tax hike took effect, major operators under the Sports Betting Alliance limited themselves to warnings in messages to players, urging them to protest lawmakers’ actions with the memorable slogan “STOP THE HIKE.” It was futile, and the new progressive tax rate took effect July 1, 2024.

This time, there was no time for such tactics, as the tax hike decision didn’t allow it. Only concrete actions remained. Theoretically, operators could’ve diluted the tax burden by raising margins and offering worse odds. To what extent this would be possible without drastically worsening the product is unclear. Transparently passing the 50-cent tax onto players, however, draws a clear line, showing Illinois it’s effectively taxing its own residents.

This is a loud, blunt message from the company and Flutter’s CEO, Peter Jackson, far more forceful than last year’s “STOP THE HIKE.”

Surcharge Returns in a New Form

We all remember DraftKings’ attempt last year to introduce a surcharge in four high-tax states, including Illinois. The idea faced massive backlash, no other operators followed suit, and DraftKings quickly abandoned it.

This time, we’re dealing with a similar situation, though due to the nature of Illinois’ new betting tax, the fee is per transaction, not per player profit as DraftKings proposed.

This shows DraftKings’ idea last year had merit, but its timing was off. We can only speculate whether, if it had stuck and other operators adopted surcharges, it might have deterred Illinois lawmakers from further tax hikes. That remains speculative.

DraftKings was persistent with its cost-sharing idea in high-tax states, launching a pilot Sportsbook+ subscription in New York late last year. On the latest earnings call, Jason Robins expressed satisfaction with the project, and given recent changes, its importance may grow.

FanDuel Steps Up as Market Leader

While last year’s efforts to protect operators’ interests came from DraftKings, this year, market leader FanDuel was the first to take concrete steps.

FanDuel has become the face of this initiative and will await responses from other market players. In the context of fighting for fair business competition, the Flutter-owned operator has effectively fulfilled its role as the top player.

Problematic Responsible Gaming

Theoretically, responsible gaming is a pillar of the betting market, with operators, regulators, and lawmakers all tasked with upholding it. In Illinois, however, we’ve reached a problematic point.

The cause-and-effect chain started by lawmakers and continued by FanDuel means betting small stakes in Illinois is no longer cost-effective for players.

If we stretch to defend this, we could argue it might deter some from betting, which, with a dose of creativity, could align with responsible gaming goals.

But in Illinois, we’re now incentivizing recreational players, who’ll feel FanDuel’s transaction fee most, to bet larger amounts. Since the fee is fixed, players may aim to minimize its share of their wager. This raises a problem and a question that will inevitably arise: “Does the transaction fee encourage players to risk funds they didn’t plan to spend?”

Given the situation’s complexity, this question will likely be directed not at Illinois lawmakers but at operators, starting with FanDuel.

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FanDuel’s decision to introduce a transaction fee in Illinois is bold but risky. Fully aware, FanDuel is engaging in a fierce debate with state authorities to defend its interests. Without a doubt, the unfolding of this situation will be one of June’s most intriguing storylines. Will other operators follow the market leader, or opt for less transparent measures? What will smaller players with the lowest revenues, hit hard by the new tax, say?