NEW YORK (AP) — States are looking to increase their take from the $16 billion online sports gambling industry as it expands across the country with big partnerships.

DraftKings, FanDuel and other betting apps are facing a bigger tax hit in Illinois following changes to tax policy this year. New Jersey, Massachusetts and other states have also tried to raise taxes on the industry or plan to.

DraftKings and FanDuel count Major League Baseball and the National Football League among their biggest partnerships. ESPN owner Walt Disney Co. has also gotten involved in the action with ESPN Bet, which has a partnership with the National Hockey League. Established casino operators like MGM Resorts and Penn Entertainment have also expanded into online sports gambling.

All sports wagering revenue in the U.S. jumped 22% to $3.33 billion in the first quarter of 2024, according to the American Gaming Association. The industry’s growth has piqued the interest of state governments.

Illinois this month switched from a flat 15% tax on adjusted gross revenue for online sports betting companies to a new progressive rate ranging from 20% to 40%. The state legalized sports gambling in 2019 and last year it earned just over $1.5 billion in tax revenue from online sports betting operations and casinos. By comparison, the state lottery, which started operating in 1974, had revenue of about $2.32 billion in 2023.

The new policy puts Illinois’ top tax rate for online sports gambling operations in the same league as New York, which has a 51% top rate. New Jersey is considering doubling its tax rate to 30%. A proposal to boost Massachusetts’ rate from 20% to 51% failed in May.

In a conference call with investors, DraftKings CEO Jason D. Robins said that tax increases could hurt the company’s ability to be competitive and draw customers away from the illegal gambling market.

“My expectation is that we’ll be able to convince them that it’s not a good policy decision,” he said.

Commercial land-based gaming — encompassing casino slot machines, table games and retail sports betting — accounted for $50.02 billion, or 75.3% of total revenue in 2023, according to S&P Global. Online gaming generated $16.43 billion.

The new tax rate in Illinois could prompt DraftKings and FanDuel to take steps including pulling back on local marketing and promotion deals, according to an analysis by MoffettNathanson. It could also mean revisiting the terms of deals with existing partners.

“The biggest question…would be which state is next and how realistic are higher taxes” across other states with legalized gambling, the report said.

A 2018 decision from the U.S. Supreme Court struck down a federal law prohibiting sports gambling. Prior to that, Nevada was the only state where sports betting had been legal. Now, 30 states and Washington D.C. allow online sportsbooks, according to the American Gaming Association. For investors, FanDuel’s owner Flutter Entertainment is the dominant company, with a market value of more than $33 billion, while DraftKings commands a market value of about $20 billion.

Investors have taken notice of the growth. DraftKings stock price more than tripled in 2023 as its revenue surged more than 60%. It’s expected to incur a slight loss in 2024 but finally post an annual profit in 2025 as revenue continues growing. Many other online sports gambling operations have helped bolster revenue for broader gambling-focused companies, including MGM Resorts with BetMGM and Penn Entertainment, which partners with Disney for ESPN Bet.

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