Chicago is preparing to impose a new municipal tax on sports betting revenue after the city’s 2026 budget cleared the approval process without direct action from the mayor. The $16.6 billion spending plan, passed by the Chicago City Council, includes a 10.25% levy on sportsbook revenue generated within city limits, scheduled to take effect on January 1. Mayor Brandon Johnson confirmed he would neither sign nor veto the budget, allowing it to become law by default under city rules.

The tax emerged from a revised budget process that shifted control away from the mayor’s original proposal. Johnson first introduced the sports betting levy in October as part of broader efforts to address the city’s finances. However, aldermen rejected his call for a corporate head tax and instead advanced an alternative budget that preserved the sports wagering provision. As a result, the city-level tax now moves forward without a transition period or delayed implementation.

Layered Tax Structure Raises Operator Costs

Once in force, the Chicago levy will add another layer to an already complex tax framework facing licensed sportsbook operators in Illinois. At the state level, Illinois operates a progressive tax system on sports betting revenue, with rates starting at 20% and rising to 40% once operators exceed defined annual revenue thresholds. Cook County, which includes Chicago, already applies a 2% tax on sportsbook revenue.

With the additional 10.25% city tax, the minimum combined rate on Chicago-based operator revenue will reach 32.25%. For large national operators projected to cross the $200 million state revenue threshold, the effective rate on revenue tied to Chicago wagers could exceed 50% for significant portions of the fiscal year. FanDuel and DraftKings are among the operators expected to reach that upper state tax bracket during December, which would push their total tax exposure on city-generated revenue to at least 52.25% for more than half of the year.

The overall tax burden has increased further since Illinois introduced a per-wager surcharge in July under the FY 2025–26 state budget. Under that system, sportsbooks pay $0.25 on each of their first 20 million bets and $0.50 on every wager beyond that threshold. Operators have largely passed these costs on to customers, and state data show that wagering volume has declined even as total revenue has continued to grow. Despite those trends, Illinois still recorded a record $1.6 billion sports betting handle in October, according to figures released by the Illinois Gaming Board.

Licensing Language Creates Uncertainty

Beyond the tax rate itself, the Chicago ordinance has drawn attention for its licensing requirements. The budget language requires businesses or individuals accepting sports betting wagers to hold a city-level license. That provision is expected to apply to online sportsbooks operating within Chicago, including major brands such as DraftKings, FanDuel, BetMGM, and bet365.

The ordinance does not include a clear framework outlining how operators can obtain the required city licenses. This omission has prompted warnings from industry representatives that sportsbooks could face compliance challenges or even be forced to suspend activity within the city while regulatory details are resolved.

According to InGame, the Sports Betting Alliance cautioned in a letter sent to city officials ahead of the budget’s passage, that the absence of a defined licensing pathway could place operators in a difficult position. In a public statement, the group said:
“The new Chicago tax on sports wagering will drive more sports fans to illegal, predatory websites and bookies that are thriving online without any oversight or consumer protections, while avoiding tax obligations entirely. Further penalizing players in the City of Chicago pushes more sports fans to unregulated, illegal alternatives and has serious implications for the sustainability of the legal market.”

The alliance also urged city leaders to reconsider the timing of implementation, stating:
“We urge city leaders to delay the new online sports betting license infrastructure given the extremely truncated timeline caused by the budget process. The new licensing process creates regulatory hurdles that could significantly constrain sportsbook operations in Chicago and may force companies to explore all legal options.”

Revenue Projections and Political Pushback

City officials estimate the new sports betting tax will generate approximately $26.3 million annually. That projection is based on the assumption that Chicago accounts for roughly 40% of sportsbook revenue generated across Cook County, using 2024 figures as a benchmark. Applying that same share to the $610.5 million in Cook County adjusted gross revenue reported during the first ten months of 2025 suggests the city would have collected about $25 million over a comparable period.

Some forecasts place total new tax revenue even higher when combined with other measures in the budget. Chicago’s 2026 plan also anticipates $6.8 million in additional revenue from the legalization of video gaming terminals, marking the first time the machines would operate legally within the city. The rollout of VGTs is expected to affect the performance of Bally’s Chicago, the casino project scheduled to open in the second half of 2026.

At the state level, Chicago’s move has triggered resistance from lawmakers concerned about fragmented gambling regulation. Illinois House Gaming Chairman Daniel Didech introduced legislation in October that would bar local governments from taxing or regulating gambling activities, limiting the use of home rule authority in this area. Separately, State Senator Patrick Joyce has filed a bill that would reduce Chicago’s share of the Local Government Distributive Fund by an amount equal to any revenue the city raises from a sports betting tax.

Neither proposal has advanced to a vote, but their introduction highlights ongoing tension between city and state officials over control of gambling policy and revenue allocation. Meanwhile, operators continue to assess how the combined effect of state surcharges, progressive tax rates, and the new Chicago levy will shape the economics of regulated sports betting in one of the country’s largest urban markets.