Illinois Budget Targets Sports Prediction Markets With New Tax

Illinois lawmakers have passed the state’s FY2027 budget with new rules that directly affect gambling and fantasy sports. The package introduces a tax on sports‑event prediction market contracts, a move that could intensify the state’s ongoing legal fight with the Commodity Futures Trading Commission. 

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The CFTC sued Illinois in April, arguing that the state cannot regulate federally authorized prediction market operators. 

At the same time, the budget creates a formal licensing and taxation framework for daily fantasy sports. Lawmakers say the new structure will bring clarity to DFS operators and ensure they contribute to state revenue. 

Prediction markets could face up to 3.5% in taxes

Illinois’ new budget bill, Senate Bill 3019, reshapes the state’s gambling framework by adding “exchange wagers” to the list of sports bets allowed under law. 

These wagers, defined as contracts or transactions executed on prediction markets tied to sporting events, will now be taxed under a fresh system. Each transaction will carry a 1.75% tax, but once a licensee surpasses five million wagers in a fiscal year, the rate doubles to 3.5%. 

The approach mirrors Illinois’ per‑bet sportsbook tax introduced last year, focusing on transaction volume rather than adjusted gross receipts. 

Lawmakers also reduced the initial master sports wagering license fee for online operators from $20 million to $15 million, while keeping the $250,000 application fee unchanged. What remains unclear is how these licensing provisions will apply to federally regulated prediction market operators, who are already in dispute with the CFTC over jurisdiction.

Illinois already in multiple prediction markets battles

The new tax arrives while Illinois is already locked in several disputes over prediction markets. In April, the Commodity Futures Trading Commission filed suit against the state, arguing that “Illinois’s attempt to shut down federally regulated DCMs intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets.”

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That case followed cease‑and‑desist letters sent by Illinois regulators to operators such as Kalshi, Polymarket, and Crypto.com, claiming that sports‑event contracts amounted to gambling under state law. 

Operators have also taken Illinois to court. In December 2025, Coinbase sued Illinois, along with Michigan and Connecticut, challenging state efforts to regulate prediction markets. 

The new exchange‑wager tax could spark more litigation, especially as other states face similar battles. Just last week, Kalshi filed suit against Minnesota after lawmakers there passed a second ban on prediction markets, replacing earlier provisions that had already triggered a federal lawsuit from the CFTC. 

DFS operators now seperated into two categories

Illinois’ new budget sets up a clear framework for daily fantasy sports under the oversight of the Illinois Gaming Board. The law divides operators into two groups based on size: small operators serving 7,500 or fewer patrons, and large operators serving more than that threshold. 

Licensing fees reflect the difference, with smaller firms paying $500 for an initial license and larger ones paying $7,500. Each license will remain valid for two years. 

Beyond licensing, the law imposes a 15% tax on adjusted gross fantasy contest receipts. Operators must also meet strict compliance standards, including age checks, geolocation controls, identity verification, and anti‑money laundering procedures.

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