Shares of major sports-betting companies like DraftKings (NASDAQ: DKNG) and FanDuel’s parent Flutter Entertainment (NYSE:FLUT) tumbled as the Illinois Senate passed a significant new tax structure for sports-betting revenues. DKNG shares are down 1.26% in the premarket after shedding more than 10% in yesterday’s session, whilst FLUT have lost a further 0.93% in the premarket to add to the loss of 7.73% on Tuesday.

The legislative change is part of the state’s latest budget proposal and seeks to impose a progressive tax rate that could rise as high as 40%.

The current legislation introduces a sliding scale for taxing sports-betting companies, beginning at 20% and potentially doubling depending on the revenue. This move has sent shock waves through the industry, as it stands to affect the bottom line of large operators such as DraftKings and FanDuel most significantly.

Should the proposal become law, Illinois could become the state with the second-highest sports-betting tax in the United States, trailing behind New York, where betting companies are taxed at a staggering 51%. The tax hike has opened a debate about the future of sports betting in the state, with concerns that it may drive major players out of Illinois.

Lobbyists for sports betting have indicated that companies like DraftKings and FanDuel may reassess their presence in Illinois if the tax increase is implemented. Such a move might dramatically transform the sports-betting landscape in the state.

Following the news of the Senate’s decision, the reaction from investors was swift and negative, with DraftKings’ shares falling by more than 12%, and Flutter Entertainment’s stock plunging close to 7%. This decline reflects the market’s concern over the potential impact of the tax increase on these companies’ profitability.

• JPMorgan have kept an Overweight rating and $56 price target on Draftkings.
• Citi have kept a Buy rating and $57 price target on DraftKings.

Sports-betting firms are actively contesting the new tax rates. They claim that the existing taxes are already substantial and that any further increase could have detrimental effects, such as leading to less favourable odds and diminishing promotional offers for customers. The dialogue between the industry and lawmakers continues as both sides weigh the financial ramifications of the proposed tax system.

The Senate’s proposal has yet to become binding law, as it requires further approval. The discussions in the state legislature and the sports-betting community are ongoing, with the potential outcomes having far-reaching implications for the industry’s future in Illinois.