A coalition representing some of the largest online sportsbooks in the United States has taken legal action against the city of Chicago, challenging a new tax and licensing framework included in the city’s 2026 budget. The lawsuit, filed Tuesday in Cook County Circuit Court by the Sports Betting Alliance, seeks to stop Chicago from enforcing a 10.25% tax on sports betting revenue generated within city limits, along with new local licensing requirements for operators.

The ordinance was scheduled to take effect Thursday, coinciding with the start of the 2026 fiscal year. Under the plan approved by the City Council earlier this month, sportsbooks would need to obtain city-issued licenses and pay the new tax on adjusted gross receipts tied to bets placed in Chicago.

Sportsbooks Challenge City’s Authority

In its court filing, the Sports Betting Alliance argues that Chicago lacks the legal authority to impose either the tax or the licensing system. The group represents several major operators, including DraftKings, FanDuel, BetMGM, bet365, and Fanatics Betting and Gaming.

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.”

According to the lawsuit, Illinois’ Sports Wagering Act does not permit municipalities to layer additional taxes or licensing requirements on top of the state’s existing regulatory structure. Sportsbook operators already pay between 20% and 40% in state taxes, depending on revenue levels, as well as per-wager fees of 25 cents on each of the first 20 million bets and 50 cents for each bet beyond that threshold.

Licensing Timeline and Legal Maneuvers

The Sports Betting Alliance initially sought a temporary restraining order to block enforcement of the ordinance before it took effect. The group argued that the short window between the City Council’s Dec. 20 budget approval and the Jan. 1 implementation date left operators without a clear path to compliance.

The complaint said that as of Tuesday, the city 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. The alliance warned that such a scenario 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.”

On Wednesday, after Chicago issued licenses to the alliance’s member operators, the SBA withdrew its request for a temporary restraining order. A spokesperson cited by ESPN confirmed that while the emergency motion was dropped, the underlying lawsuit will continue.

Budget Stakes and Political Response

Chicago officials have said the new tax is expected to generate about $26 million in revenue next year. Mayor Brandon Johnson proposed the measure as part of an effort to balance the city’s budget. The City Council ultimately passed the spending plan without the mayor’s support, and Johnson announced last week that he would allow the budget to take effect without his signature.

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

At the state level, some lawmakers have already moved to counter Chicago’s approach. State Rep. Daniel Didech, a Buffalo Grove Democrat who chairs the House Gaming Committee, introduced legislation in October that would explicitly prohibit local governments from regulating, licensing, or taxing sports betting.

“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.”

That 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 lawmakers are expected to return to Springfield in mid-January, as the legal fight over Chicago’s sports betting ordinance continues.