High Sportsbook Taxes Hurt Bettors Before They Hurt Operators

The Tax Landscape: A Patchwork of Punishing Rates

When the Supreme Court struck down PASPA in 2018, states rushed to design their own sports betting frameworks. The sportsbook tax rates range from Nevada's and Iowa's 6.75% on gross gaming revenue (GGR) all the way up to 51% in New York, New Hampshire, and Rhode Island. Delaware taxes sportsbook revenue at 50%, while Pennsylvania charges operators 36%. 

Illinois, home to the second-largest US betting market by handle, hiked its tax from a flat 15% to a graduated rate topping out at 40% in mid-2024 and then added an entirely new per-wager excise tax of up to $0.50 on each bet placed. These hefty costs are built into every line offered to every gambler who opens an app.

How Taxes Flow Downhill to Bettors

A sportsbook taxed at 51% of GGR needs to extract significantly more margin from each wager than one paying 6.75%. The most direct mechanism is the vig, the built-in house edge on every bet. The standard line on a point spread is -110, representing a house edge of roughly 4.5%. In high-tax environments, operators shade lines wider, offer fewer competitive prices on alternate markets, and pare back bonuses.

When Illinois rolled out its per-wager excise tax in 2025, the major sports betting operators immediately announced they would pass the fee directly to consumers on a per-bet basis and forced sportsbooks to increase their minimum stake.

The per-bet structure also specifically disadvantages recreational bettors who end up paying a larger percentage fee. These are the very customers operators advertise to the most

Licensing Fees and the Barrier to Entry Problem

Taxes are only part of the regulatory cost stack. Licensing fees in many states are substantial enough to function as effective gatekeepers that limit competition. And limited competition always harms consumers!

Pennsylvania charges operators a one-time licensing fee of $10 million as well as a $250,000 renewal fee every five years. Massachusetts demands $5 million upfront and another $5 million upon renewal. Many states also require online sports betting operators to partner with existing brick-and-mortar casinos or racetracks.

As a result, the US market has consolidated dramatically. Nationally, FanDuel and DraftKings alone account for roughly two-thirds of the sports betting market share. A handful of operators, including FanDuel, DraftKings, BetMGM, and Caesars, hold an estimated 75-80% of the combined share. 

Companies that once invested heavily in the space, including Churchill Downs (TwinSpires) and Wynn (WynnBet), have exited entirely after absorbing billions in startup losses against a regulatory cost structure they couldn't sustain.

This regulatory distortion is particularly punishing consumers in single-operator markets. Delaware taxes sports betting revenue at 50% and has operated the market as a de facto monopoly under the state lottery, currently contracted exclusively to BetRivers.

The Offshore Advantage

The cost asymmetry between regulated US sports betting operators and offshore competitors is stark. Offshore sportsbooks, typically based in jurisdictions like Curacao, Costa Rica, or Panama, pay none of the state GGR taxes, no multi-million-dollar licensing fees, no per-wager excise levies, and no mandated partnerships with brick-and-mortar casinos. 

That translates into better pricing for offshore customers. As one industry analysis noted, offshore sites often have lower overhead costs and different tax structures than domestic operators. They can offer reduced juice and a smaller vig as a result. 

Offshore books have also historically been more willing to tolerate winning bettors, offering higher limits and avoiding the rapid account restrictions that have become standard practice at US-regulated books.

The Limiting Epidemic: A Tax-Adjacent Problem

High taxes and narrow margins create a second-order effect that is harder to quantify but widely experienced - the aggressive limiting of winning bettors.

The Massachusetts Gaming Commission convened a first-of-its-kind public roundtable in 2024 in a bid to solve the issue. Every major licensed operator in the state declined to attend. Attendees, including bettor advocates and gambling journalists, described an environment where accounts were closed for simply winning.

Jack Andrews, co-founder of betting education site Unabated.com, testified that DraftKings had limited his account so severely that he could only bet $27 on a Super Bowl coin flip.

Regulators have largely tolerated limiting precisely because the alternative is reduced sportsbook profitability, which means reduced tax revenue. The incentive structure is all about protecting margins at the bettor's expense.