LOUISVILLE, Ky. – Major U.S. sportsbooks continue warning about increased taxes on their bottom lines, telling policymakers these growing fees could threaten the legal industry’s long-term survival.
- Major sportsbooks like FanDuel warn that rising state taxes could make legal sports betting unprofitable, threatening the industry’s sustainability.
- High tax rates may reduce promotions, worsen odds, and push bettors to unregulated markets, undermining consumer protections and state revenue goals.
- Industry leaders suggest legalizing online casino gaming as a solution, citing its higher tax revenue potential compared to sports betting.
Several of the largest regulated sports betting markets, including Illinois, Ohio, Maryland, and North Carolina, have considered or already approved tax rate increases in the past 12 months. These fees, gaming stakeholders have argued, make sustaining a business unviable in what is comparatively a low-margin industry.
FanDuel head of state government relations Cesar Fernandez said Friday that, industry-wide, the average sportsbook operator makes $1.55 in realized profit for every $100 wagered. Speaking at the National Council of Legislators from Gaming States (NCLGS) conference, Fernandez said that a modest increase in taxes and/or marginally stronger performances by winning bettors would make operators' sportsbook offerings unprofitable.
Fernandez said FanDuel has paid more than $5 billion in taxes since 2018.
“We view ourselves not just as a net contributor to these states but also a partner in their state funding,” Fernandez said. “But (more recently) we've had a little bit of a narrative shift as we're engaging with policymakers throughout the country, and that's now ‘tax gambling companies, they can afford it.’”
Financial details
In a presentation at Friday’s NCLGS conference, Fernandez laid out the extensive costs that come with sportsbook management.
The national hold percentage, the rate at which sportsbooks win off bettors, is around 10%, Fernandez said. Each company then pays federal and state taxes, including on bonus bets given to customers, which drops the profit margin by more than 25%, per industry averages. Adding in costs from marketing, employee salaries, and other operating expenses, Ferndez said this leaves US sportsbooks only around 15% realized profit from the average of $10 won on every $100 wagered.
Thirty-nine states have legalized some form of sports betting since the Supreme Court struck down the federal wagering ban in 2018. The industry pushed, usually successfully, in most states for a tax rate of around 10% on gross gaming revenue.
Several states have since moved to double that rate – or more. Illinois, the second-highest grossing legal U.S. sports betting market, approved a tiered increase at certain revenue thresholds in 2024 and followed that with an increasing fee on every bet placed beginning in 2025.
US sportsbooks generate $1.55 in "real" profit for every $100 wagered after accounting for taxes, cost of sales, marketing, and other overhead, per FanDuel's Cesar Fernandez during an industry conference today
— Ryan Butler (@ButlerBets) July 11, 2025
That comes after New York, the largest legal market, approved a 51% fee on gross gaming revenue when the state began legal mobile sports betting in 2021. Combined, the two states accepted roughly $37 billion of the $150 billion wagered legally in the U.S. last year.
Should these rates continue to increase in additional states, especially smaller-populated jurisdictions, it could threaten the viability for major books such as FanDuel and rival DraftKings – and put smaller books out of business entirely, Fernandez said.
The current fees may push regulated operators to curtail promotions, limit marketing, and offer worse odds. This puts players back to the unregulated markets that don’t offer player protections or pay taxes, Fernandez said, defeating much of the justification for regulating sports betting in the first place.
A solution that would ameliorate the sports betting tax increases and continue to boost government coffers would be legal real-money online casino gaming, Fernandez said. Online slots and table games generate nearly three times as much tax revenue as mobile sportsbooks, but these have proven far less politically palatable; only seven states have a legal iGaming platform and no new state markets have been approved since 2023.
Gaming headwinds
The latest discussion about sports betting taxes comes as state governments deal with thinning revenue streams.
Pending federal spending cuts could tighten state budgets nationwide, Brian Sigritz of the National Association of State Budget Officers said Friday at the NCLGS conference. Though many states still have budget surpluses, these margins are continuing to narrow since federal funds decreased following a spending boom in the wake of the COVID-19 pandemic onset in 2020.
Sigritz said gambling taxes average around 2% of a state’s overall tax revenue, though that number varies widely by state.
One way for states to counter the revenue decreases have been increases on “vice” industries such as gambling. But stakeholders have raised growing concern that high taxes would actually hurt state’s financial bottom lines if players leave the legal books for unregulated and untaxed gaming offerings.
The regulated industry’s fears are compounded by thousands of unregulated social and sweepstakes casinos that offer free-to-play gaming. Prediction markets, which offer event contracts on sporting events that resemble sportsbooks and are regulated federally, are also becoming increasingly prominent.
U.S. gamblers could also see a significant federal tax increase beginning in 2026 after Congress passed a sweeping financial bill that limited gambling loss deductions.
Attorney Brad Fischer, who represents FanDuel, DraftKings and other major sportsbooks, said during Friday’s NCLGS conference that the industry is facing multiple threats from unlicensed operators – some of which are still not even realized.
“It's happening right now and it's going to only become more prevalent in the future, and I don't say that as some like fear mongering tidal waves be on us, this is just reality,” Fischer said. “This year's boogeyman, it's not going to be next year's boogeyman.
“There's always going to be something, and if you just squeeze tighter on what you have right now, it's not going to do anything about that, and it's going to ultimately be a disservice.”
