Despite the fact that legal sports betting is flourishing in the US, many state legislators are still pushing for higher taxes in order to increase their share of the revenue. According to a well-known consumer research agency, state governments' seemingly endless tax increases on legal sports betting may be pushing some customers back to the illicit market.

Senior economist Justin Leventhal of the American Consumer Institute claims that state legislators' excessive taxes on online sportsbooks are manipulating the odds against customers in an opinion piece that appeared in The Hill. He argues that by providing lower odds than offshore, unregulated, untaxed internet bookies, the numerous regulated sportsbooks in the 33 states and Washington, DC, where online sports betting is permitted, push their heavy tax requirements on customers. Online sportsbooks with high taxes have also curtailed their incentives and promotions.

"If adults are free to gamble, then they should be free to do so without punitive tax schemes that drive up costs and push bettors back toward the black market,” Leventhal opined.

“A modest, predictable tax structure gives operators certainty, encourages competition, and leaves consumers with better odds and lower costs. It also provides states with a sustainable source of revenue without driving bettors to untaxed offshore sites where they can easily be taken advantage of,” Leventhal continued.

Tax Increases on Sports Betting

Leventhal's piece comes after Illinois increased its effective tax on online sportsbooks for the second time in a year in June.

A progressive tax was introduced in Illinois in 2024, raising the effective rate on market leader FanDuel from 15% to 40%. Then, earlier this year, Illinois lawmakers imposed a 20-cent per-bet tax. Once a book facilitates more than 20 million bets annually, the fee rises to 50 cents per wager.

This year, New Jersey also increased its levy on online sports betting. Online sportsbooks will donate 19.75% of their net winnings to the state starting in June. Prior to the tax increase, Trenton received 15% of the money made from online sports betting. Online oddsmakers only contributed 13% to the state when sports betting was initially made legal in New Jersey.

Louisiana similarly raised its taxes on sports betting from 15% to 21.5% this year. On August 1st, the new rate went into effect.

Investors have been informed by gaming analysts that the majority of online sportsbook companies will cut back on promotions in order to offset the increased taxes. While it may benefit stockholders, it is definitely not in the best interests of customers.

Contradictory Effects

The public in Illinois doesn't appear to be returning to offshore sports betting websites as a result of the increased taxes on online sports bettors. The total amount of money risked in online sports betting has increased from $7.14 billion in 2024 (January through July) to $8.25 billion over the course of seven months in 2025. That represents a 15.5% increase from the previous year.

It's not the same in New Jersey.

Online oddsmakers have received $7.2 billion in wagers through August. almost $7.82 billion in sports bets were placed online at this time last year, a difference of almost $616.1 million. January 2022 saw the start of online sports betting in New York.

"If bettors feel squeezed by bad odds, fees, and disappearing perks, they may return to the unregulated platforms that are not burdened by punitive regulations,” Leventhal continued. “Pushing people back to the illegal market undermines consumer protections, cuts into state revenues, and defeats the very purpose of legalization.”  

The goal of the American Consumer Institute is to advance consumer welfare via public policy and education.