Are High State Taxes Driving Sports Betting Fans Toward the Black Market?

• High taxes on online sportsbooks could be fueling the illegal market.
• A consumer policy institute encourages state lawmakers to stop raising online sports betting taxes.

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Legal sports betting is thriving in the United States, yet many state lawmakers are eager to cash in, imposing higher taxes that may inadvertently push consumers back to the black market. This perspective is brought to light by a prominent consumer research institute.

In an opinion piece published in The Hill, Justin Leventhal, a senior economist at the American Consumer Institute, argues that these tax policies are disadvantaging consumers. He points out that the numerous regulated sportsbooks in the 33 states plus Washington, D.C., are burdened with high tax obligations, resulting in less favorable odds compared to their offshore, unregulated counterparts. Furthermore, high taxes have led to a reduction in promotions and bonuses typically offered by these regulated sportsbooks.

If adults are free to gamble, they should be able to do so without punitive tax schemes that inflate costs and revert bettors back to the black market,” Leventhal stated.

He further asserts that a reasonable, consistent tax structure can offer operators stability, encourage competition, and ultimately result in better odds and lower costs for consumers. It can also ensure states obtain sustainable revenue without driving bettors to unregulated sites where they hold little to no consumer protection.

Overview of Recent Sports Betting Tax Hikes

Leventhal’s insights come on the heels of Illinois implementing a significant tax increase for online sportsbooks. In June 2025, the state raised its effective tax rate on industry leader FanDuel from 15% to a staggering 40%. Additionally, Illinois lawmakers established a per-bet fee of 20 cents, which escalates to 50 cents after more than 20 million bets are processed in a year.

In Louisiana, the state hike is noticeable too, with taxes increasing from 15% to 21.5% as of August 1. Analysts are cautioning investors that these elevated tax levels will lead sportsbooks to cut back on promotions, which is not in the best interest of consumers.

Conflicting Outcomes

Interestingly, in Illinois, the recent tax increases don’t appear to have deterred public engagement in online sports betting—total online betting handle jumped from $7.14 billion in the first half of 2024 to $8.25 billion in 2025, marking a 15.5% year-on-year growth.

Conversely, New Jersey presents a contrasting scenario. As of August 2025, total online bets fell to $7.2 billion from over $7.82 billion during the same timeframe in the previous year, which reflects a considerable decline.

If bettors feel burdened by poor odds, fees, and the lack of lucrative promotions, they might return to unregulated platforms that are less prone to strict regulations,” Leventhal cautioned. “This regression to the illegal market threatens consumer protection, squeezes state revenues, and undermines the core intent behind legalization.

The American Consumer Institute advocates for consumer welfare through education and public policy, urging reconsideration of aggressive tax strategies that might undo the advancements made in the legal sports betting landscape.

Key Considerations:

• States should explore tax structures that support both consumer interests and government revenue.
• Monitoring the effects of tax hikes can provide crucial insights into how they affect consumer behavior.
• Consumer protection should be at the forefront of legislative discussions regarding online gaming.

In conclusion, as states continue to navigate the complexities of legal sports betting taxes, it is imperative to strike a balance that protects consumers while ensuring ongoing revenue for state programs. Tax policies that consider the nuances of consumer behavior will likely yield better outcomes for all parties involved.