Arizona governor proposes 45% tax on large sports betting operators

• Governor Katie Hobbs’ FY 2027 executive budget proposes increasing the tax rate to 45% for operators handling more than $75 million monthly.
• Four operators currently meet this threshold: DraftKings, Caesars, Fanatics and FanDuel, representing approximately three-quarters of the market.
• State officials project the tax hike could generate $146 million in fiscal year 2027.

Governor Katie Hobbs has unveiled a proposal to increase Arizona’s sports betting tax rate from 10% to 45% for the state’s largest operators, marking one of the most aggressive tax proposals in the United States gaming market.

The measure forms part of Hobbs’ $17.7 billion executive budget for fiscal year 2027 and targets operators handling more than $75 million in monthly revenue. If approved by the state legislature, the new tiered rate structure would take effect on 1 July 2026.

4 major operators affected by threshold

According to recent analysis, four sportsbooks currently meet the monthly threshold: DraftKings, Caesars, Fanatics and FanDuel. These operators account for approximately three-quarters of Arizona’s sports betting market.

Arizona’s current 10% tax rate is among the lowest in the nation, ranking fifth amongst states with legal online sports betting. Under the proposed tiered structure, smaller operators and tribal sportsbooks would continue paying the existing 10% rate.

State budget documents project the higher rate could generate $146 million in fiscal year 2027. The measure represents one component of several revenue proposals in Hobbs’ budget aimed at offsetting anticipated reductions in federal funding.

Budget context and revenue uncertainties

The sports betting tax proposal is part of what Republican legislative leaders have characterised as nearly $1 billion in uncertain or one-time funding underpinning the governor’s budget plan. These revenue assumptions include anticipated federal reimbursements for border-related spending and other measures.

“As the industry changes, it is clear that not all operators are alike, with a handful of large operators capturing the majority of the market,” Hobbs stated in her budget proposal.

“Low privilege fees and generous tax deductions have allowed these operators to achieve record corporate profits. In response, states across the country have continued to modify and update their regulatory structures since 2021, raising fees and leaving Arizona in a competitive disadvantage.”

Christian Slater, spokesman for Governor Hobbs, defended the approach, stating:

“I think that we have a very reasonable and balanced budget based on some pretty reasonable assumptions about fees that we can levy on sports betting.”

Republican legislative leaders have expressed scepticism about the revenue projections, describing the plan in a joint statement as containing “unrealistic revenue assumptions, hidden tax increases, and policies that would raise costs for Arizona families while creating long-term tax confusion.”

Industry concerns over competitive impact

The proposal has drawn concern from gaming industry stakeholders who argue the tax increase would damage Arizona’s competitive position. Industry advocates have warned that significantly higher tax burdens could force operators to reduce promotional spending, tighten odds, or redirect resources to neighbouring states.

Similar concerns emerged in other states that implemented sharp tax increases. In Illinois, operators responded to progressive tax increases and per-wager fees by imposing transaction fees and raising minimum bet amounts. Industry sources have cautioned that aggressive tax hikes risk driving bettors toward unregulated operators.

Arizona’s 10% rate currently ranks among the lowest in the nation. States like New York and Illinois now effectively take far higher shares through elevated gross gaming revenue taxes, with New York imposing a 51% rate. Illinois has implemented both progressive tax tiers and per-wager fees of 25 cents on the first 20 million bets and 50 cents per bet thereafter.

Constitutional questions and legislative pathway

The proposal faces both political and constitutional hurdles. Arizona’s constitution requires a two-thirds supermajority vote from legislators for any law that increases state revenue.

However, the Hobbs administration contends that because the payments are structured as regulatory “fees” rather than traditional taxes, the increase may only require a simple majority to pass. Republican legislators have challenged this interpretation. The party controls both chambers of the Arizona legislature and has historically opposed tax increases.

Market growth and operator landscape

Arizona’s sports betting market has demonstrated robust growth since launching in September 2021. Recent monthly handle figures have regularly exceeded $850 million, with the state posting strong year-over-year increases in betting activity.

FanDuel and DraftKings have emerged as clear handle leaders in the market. BetMGM regularly posts nine-figure monthly handle totals, whilst Fanatics, Caesars and bet365 form a competitive second tier of operators.

Arizona authorises a mix of online operators tethered to professional sports entities and tribal casinos, along with retail sportsbooks at tribal properties. Current partnerships include BetMGM with the Arizona Cardinals, FanDuel with the Phoenix Suns, and Caesars with the Arizona Diamondbacks.

National trend of tax increases

The proposal reflects a broader trend of states reassessing gaming tax structures. Multiple jurisdictions have implemented or proposed increases in recent legislative sessions:

Illinois implemented a progressive tax scheme in 2024 targeting the largest operators by market share. The state subsequently added per-wager fees that have prompted some operators to introduce transaction charges for bettors.

New Jersey increased its combined tax rate from 13% to 19.75% in 2024, representing a compromise after Governor Phil Murphy initially proposed a 25% rate.

Louisiana raised its online sports betting tax rate from 15% to 21.5%, with gaming regulators subsequently warning legislators about the risks of increases that could cause operators to exit markets.

Ohio successfully implemented an increase from 10% to 20% in 2023 under Governor Mike DeWine.

West Virginia lawmakers have introduced legislation to increase their sports betting tax from 10% to 25%, reflecting broader efforts across state governments to capture additional revenue from the growing industry.

Timeline and next steps

The executive budget proposal now advances to Arizona’s Republican-controlled legislature for consideration. Budget deliberations typically conclude by late June ahead of the new fiscal year beginning in July.

Governor Hobbs’ office has indicated the proposal represents an opening position in negotiations and that adjustments may occur during legislative discussions. The measure would require approval from both chambers before implementation.

If passed, the tiered tax structure would represent a policy shift that could reshape Arizona’s sports betting landscape and influence tax policy discussions in other jurisdictions, monitoring the state’s approach to balancing revenue generation with market competitiveness.