Sports Betting Alliance Sues Chicago Over Citywide Online Betting Tax

^{The city of Chicago has been pulled into a lawsuit from some of the US's largest sportsbook operators over a tax proposal on sports betting revenue. (Photo: Gavin Hellier / Alamy)}

The Sports Betting Alliance (SBA), a coalition representing BetMGM, DraftKings, FanDuel, Fanatics Sportsbook, and bet365, filed a lawsuit Tuesday against a proposed tax on online sports betting revenue derived from bets placed in Chicago.

The Chicago City Council included a 10.25% tax on online sports bets in its 2026 budget, a move that was initially proposed by Chicago Mayor Brandon Johnson. Under the plan, online sportsbooks would also need to obtain a city-issued license in order to offer sports betting within Chicago’s borders once 2026 began.

Chicago Issues Licenses Ahead of Jan. 1 Tax Change

The proposal was designed to help balance the city’s budget, with estimates suggesting it could bring in around $26 million per year to the city’s coffers. 

However, the SBA filed for a temporary restraining order in Cook County Circuit Court on Tuesday in an effort to stop the tax from going into effect on Jan. 1. The SBA withdrew that motion on Wednesday after the city of Chicago issued sports betting licenses to all SBA members, but the alliance still plans to move forward with the lawsuit.

The sportsbooks argue that Chicago’s tax is unconstitutional, and that only the state has the right to levy gambling taxes.

“The Illinois Constitution reserves authority over licensing for revenue and income-based taxation to the State unless expressly delegated,” the complaint reads. “The Illinois General Assembly has never authorized the City to impose licensing fees or income-based taxes on online sports wagering.”

At least some Illinois lawmakers agree with this argument. In October, State Representative Daniel Didech (D-Buffalo Grove) proposed legislation that would prohibit local governments from licensing or taxing sports betting, though that bill has yet to be voted on. 

“When the legislature legalized sports betting in 2019, it was never our intent to allow local government to create their own rules for this industry,” Didech wrote in an October press release. “Chicago’s proposal will hurt consumers, drive vulnerable people to predatory illegal markets, and reduce state tax revenue.”

Sportsbook Operators Bristle at Illinois Tax Increases

While the mechanics of Chicago’s plan form the basis for the lawsuit, simply adding another tax on top of the fees already paid by online sportsbooks in the state is a controversial move. 

Already, sportsbooks pay up to 40% in taxes based on gross gaming revenue under a graduated system that went into place in 2024. Sports betting firms must pay 20% in taxes on their first $30 million in revenue, then 25% on revenue of up to $50 million, with further tax brackets increasing the rate until hitting 40% on all revenues beyond $200 million. That was a massive increase over the 15% flat tax on sportsbooks set when Illinois first regulated sports betting in 2020.

In May 2025, the Illinois legislature also passed a per-bet transaction fee on online sports betting that went into effect on Sept. 1. Each sportsbook now owes 25 cents per online wager on each of the first 20 million it accepts, and then 50 cents on every additional bet accepted. That led some sportsbook operators in the state to pass that cost on to consumers in the form of a per-bet surcharge. 

Both tax increases led major operators to publicly question whether such rules would ultimately hurt the state in the long run, and those same questions have been raised again about Chicago’s tax plan.

“Chicago bettors who lack legal means to place online sports wagers will be driven to illegal sports wagering alternatives readily available on the internet and through local bookies, which lack state oversight and consumer protections,” the SBA lawsuit says. “Those alternatives are untaxed, therefore depriving Illinois, and derivatively, Chicago of significant revenues under existing State tax laws.”