Sports betting stocks were jolted in early action on Tuesday after the Illinois State Senate passed a bill on Sunday proposing higher taxes on online sports betting operations. Under the new proposal, online sports betting operators will begin paying higher taxes on July 1, ranging from 20% to 40% depending on their level of annual revenue. Sports betting operators in Illinois have been paying a 15% tax since June 2021. Governor J.B. Pritzker proposed an increase to 35% earlier in the year.

Shares of DraftKings (NASDAQ:DKNG) were down 6.96% in premarket trading, while Flutter Entertainment plc (NYSE:FLUT) fell 4.39%. The development could have implications across the sector if investors factor in the potential for higher tax rates in other states. Sportsbook operators in the U.S. include DraftKings (DKNG), MGM Resorts (MGM), FanDuel (FLUT), BetMGM (MGM), ESPN Bet (PENN), BetRivers (RSI), Fanatics Sportsbook, Bally (BALY), Caesars Sportsbook (CZR), Tipico, Hard Rock Casino, PointsBet (owned by Fanatics), Wynn Bet (WYNN), GAN Limited, Station Casinos, Circa Sports, and Inspired Entertainment (INSE).

On Wall Street, Needham analyst Bernie McTernan said the firm forecasts higher taxes to pressure DraftKings’ (DKNG) 2024 adjusted EBITDA guide, although less than the firm estimates for incremental tax payments of $44 million. For Rush Street Interactive (RSI) and PENN Entertainment (PENN), the proposed progressive tax rate means they would pay a lower tax rate than DKNG due to their current market share and annual revenue.