The online sports betting and gambling company FanDuel just announced a new 50-cent surcharge on all wagers placed in the State of Illinois, and its competitor DraftKings may be next. The charge is meant to mitigate the impact of new taxes, 25 cents per bet for the first 20 million wagers and 50 cents per wager after that, which the state of Illinois instituted with its new budget. This new tax serves both a fiscal purpose, as it helps bridge a $1 billion state budget gap, and to offset some of the social costs caused by the negative externalities associated with gambling and gambling addiction.

The new tax is mostly affecting the two leading sportsbooks, who combined account for about 75% of the Illinois sports betting market. Gaming analyst Jordan Bender estimates the new transaction fee will translate to $79 million in new 2026 revenue for DraftKings and $86 million for FanDuel.

This is not the first time that new Illinois taxes on online gambling have created surcharge announcements. In August of 2024, Illinois raised the top tax paid by companies such as FanDuel and DraftKings from 15% to 40%. When that tax bill passed, DraftKings initially said it would pass along the costs to consumers. After massive backlash, which was exacerbated by FanDuel’s announcement that it would not add a surcharge at that time, DraftKings were forced to reverse its course.

Now, however, it seems that both FanDuel and DraftKings are betting that consumers will accept the tax-related surcharge. The tax incidence refers to how the burden of a tax is ultimately shared between buyers and sellers, and it is determined by the relative elasticity of demand and supply. If situations where demand is inelastic, meaning that consumers are not very sensitive to price changes, consumers will bear more of the tax burden. The recent $0.5 surcharge by FanDuel seems to suggest that they are betting on the demand for their online services to be fairly inelastic. 

Discussion Questions:

  1. Discuss the reasons why demand online sports gambling using FanDuel’s and DraftKings’ platforms could be relatively inelastic. What evidence is provided in the article to support this assumption?
  2. Discuss the connection between the tax incidence of this new tax on sports gambling and the relative elasticities of supply vs demand. Given that DraftKings’ last-year decision to not implement a surcharge, and FanDuel’s current decision to do so, what can be assumed about the relative elasticity of supply and demand in this market?