With Illinois increasing its sports betting tax rate via a tiered system – joining Ohio as states to recently increase their online sports wagering tax rate – industry stakeholders are asking the same question: Will more states follow?

The answer isn’t a straightforward yes or no, but there’s skepticism among industry insiders about widespread sports betting tax increases. DraftKings CEO Jason Robins said in early May, during the company’s Q1 earnings call, that he expected minimal tax rate hikes nationwide.

“I expect that maybe there’ll be one or two here and there that look to do that, but I don’t think many of them will,” Robins said.

He also shared a belief that DraftKings and sports betting lobbyists would “be able to convince [state lawmakers] that it’s not a good policy decision.” Robins and other industry stakeholders believe elevated tax rates can hurt the industry, causing negative effects like reduced innovation, fewer promotions, and worse odds. All of those consequences could, in theory, offer a major benefit to illegal sportsbooks and hurt a state’s legal betting apps.

Massachusetts shoots down idea

Massachusetts legislators seemed to agree with Robins and shot down the idea of an increased online sports betting tax rate late last month. New Jersey is considering a tax hike as well, although its likelihood of passing is questionable.

Brendan Bussmann, managing partner at B Global, shared on a recent Truist Securities conference call that investors have an increased fear of contagion related to tax hikes. Bussmann doesn’t envision states like New Jersey raising their rates in the immediate future, though.

Bussmann shared that a larger concern is new states legalizing sports betting and opening their markets with higher tax rates. Missouri, Georgia, and Minnesota are states to monitor that could look to implement high tax rates, should they legalize online sports betting in the coming years.

Some of the recent push for higher sports betting tax rates comes as a result of watching New York’s sports betting market. New York’s 51% tax rate grabbed the attention of legislators in other states, with some of them believing they could follow the lead of the Empire State and generate increased sports betting tax revenue while still keeping major operators in their market.

“The sportsbooks made the bed, now they have to lie in it … they swallowed a ridiculous tax rate as the price of getting that market open,” sports betting investor Chris Grove said on a recent episode of The Bostonian vs. The Book.

While the effort to boost the tax rate in Massachusetts failed — and other efforts may also fail — it’s undeniable that New York’s high tax rate, coupled with tax rate hikes in Ohio and Illinois, have caught the attention of legislators across the country. Attention doesn’t guarantee tax rate increases nationwide, but more attempts to raise rates are likely.

Positive PR needed

Grove stressed the importance of improved public relations messaging within the sports betting industry during his appearance on The Bostonian vs. The Book. He cited negative media attention surrounding the sports betting industry over the past 18 months, which ranges from New York Times investigative stories to “60 Minutes” segments to betting scandals in numerous sports, including Major League Baseball.

For operators to curtail potential tax rate increases and create a more favorable legislative environment, Grove believes there needs to be a narrative shift around sports wagering.

“We’ve seen this steady drumbeat of negative coverage, and to be honest, the industry just has not done an optimal job in countering that coverage and creating a positive narrative around sports betting,” Grove said. “Always on the back foot, never on the front foot. Seemingly not as coordinated as it could be in terms of telling a more positive story about this industry and as a result that creates a political opening for these bills.”

Should that political opening remain in the coming years, legislation around tax rates, marketing restrictions, and even topics like betting limits could impact the business outlook of online sports betting operators.