Sports Betting Alliance sues Chicago over 10.25% tax and licensing plan

• Coalition of major sportsbooks challenges Chicago’s authority to impose local betting tax and licensing.
• Operators argue that Illinois state law reserves the exclusive right to regulate and tax online sports wagering.
• City issued licenses after lawsuit filed, prompting alliance to withdraw emergency restraining order request.

A coalition representing major online sportsbooks has filed a lawsuit against Chicago, challenging the city’s new 10.25% tax on sports betting revenue and local licensing requirements.

The Sports Betting Alliance, whose members include DraftKings, FanDuel, BetMGM, bet365 and Fanatics Betting and Gaming, argues the city lacks legal authority under Illinois law.

The lawsuit was filed on 31 December in Cook County Circuit Court, targeting an ordinance approved by the City Council on 20 December as part of Chicago’s 2026 budget.

The measure was scheduled to take effect on 1 January, requiring sportsbooks to obtain city-issued licenses and pay the new tax on adjusted gross receipts tied to bets placed within city limits.

Constitutional challenge centres on state authority

The alliance contends that Illinois’ constitution reserves the authority to license for revenue and impose income-based taxation to the state level unless explicitly delegated to municipalities. The complaint states:

“The State — not the City — has sole authority to license and tax online sports wagering in the State of Illinois.”

It continues:

“The Illinois Constitution reserves authority over licensing for revenue and income-based taxation to the State unless expressly delegated. The Illinois General Assembly has never authorized the City to impose licensing fees or income-based taxes on online sports wagering.”

Sportsbook operators already face state taxes ranging from 20% to 40%, depending on revenue levels, along with per-wager fees of 25 cents on each of the first 20 million bets and 50 cents for each bet beyond that threshold.

The alliance argues Illinois’ Sports Wagering Act does not permit municipalities to add further layers of taxation or licensing on top of the existing state framework.

Illinois collected more than $56 million in sports betting tax revenue in October 2025, with FanDuel and DraftKings accounting for the vast majority. The progressive tax system, implemented in mid-2024, has made Illinois the second-highest state for sports betting tax collections nationwide.

Emergency motion withdrawn after licenses issued

The Sports Betting Alliance initially sought a temporary restraining order to block enforcement before the ordinance took effect. The group argued the short window between the City Council’s approval and the 1 January implementation date left operators without a clear compliance path.

The complaint noted that as of 31 December, Chicago had not issued any licenses, forcing sportsbooks to decide whether to “operate without a City license or cease online sports book operations entirely within the City” once the calendar turned to 2026.

On 1 January, after Chicago issued licenses to the alliance’s member operators, the SBA withdrew its request for the emergency restraining order. A spokesperson confirmed the emergency motion was dropped, though the underlying lawsuit will continue.

Budget implications and illegal gambling concerns

Chicago officials have projected the new tax will generate about $26 million in revenue during 2026.

Mayor Brandon Johnson proposed the measure as part of efforts to balance the city’s budget. The City Council ultimately passed the spending plan without the mayor’s support, and Johnson announced last week he would allow the budget to take effect without his signature.

The alliance warned that forcing operators to “go dark” could push bettors toward illegal and unregulated gambling options. The lawsuit states:

“Because those alternatives are untaxed, forcing SBA members to ‘go dark,’ would deprive Illinois, and, derivatively, Chicago, of significant revenues under existing state tax laws from online sports wagering that has been legal in Illinois and in Chicago since 2019.”

City officials did not immediately respond to requests for comment on the lawsuit. A city spokesperson said the administration had not yet received the filing and would not comment on pending litigation.

State lawmakers move to pre-empt local gambling regulation

Some Illinois legislators have already introduced measures to counter Chicago’s approach. State Rep. Daniel Didech, a Buffalo Grove Democrat who chairs the House Gaming Committee, filed legislation in October that would explicitly prohibit local governments from regulating, licensing or taxing sports betting. The bill has attracted bipartisan support with more than 25 sponsors.

“When the legislature legalized sports betting in 2019, it was never our intent to allow local governments to create their own rules for this industry,” Didech said in a press release.

“Chicago’s proposal will hurt consumers, drive vulnerable people to predatory illegal markets, and reduce state tax revenue. The city should work collaboratively with the state to ensure sound, informed policy decisions are made on this issue.”

The bill has not yet advanced to a vote. Separately, State Sen. Patrick Joyce of Essex has proposed legislation that would reduce Chicago’s share of state income tax distributions based on how much revenue the city collects from its own sports betting tax.

Illinois Gaming Board data shows the state’s sports betting market handled $1.605 billion in wagers during October 2025, generating $203.6 million in revenue. The market is dominated by online wagering, which accounted for $1.57 billion of total handle versus just $37.2 million in retail bets.

Illinois lawmakers are expected to return to Springfield in mid-January as the legal challenge continues. The case highlights broader tensions between state and municipal governments over the right to regulate and tax the rapidly expanding sports betting industry in the United States.