Arizona Governor Katie Hobbs wants to more than quadruple the state’s sports betting tax rate for its largest operators, proposing a jump from 10% to 45% in her $17.7 billion FY2027 budget. The move would transform Arizona from one of America’s most operator-friendly markets into one of its most expensive overnight—and her office says it might only need a simple majority to pass.
KEY FACTS AT A GLANCE
- Current Tax Rate: 10% (fifth-lowest in the U.S.)
- Proposed Rate: 45% for operators handling $75M+ in monthly volume
- Operators Affected: FanDuel, DraftKings, BetMGM, and Fanatics (~75% of Arizona’s market)
- Projected Revenue: $145M in FY2027, growing to $202M by FY2029
- Budget Context: Part of a $17.7B FY2027 budget with $950M in uncertain funds
- Legal Question: Governor’s office argues it’s a “fee” (simple majority) not a “tax” (two-thirds supermajority)
- Model: Mirrors Illinois’ tiered tax approach, which triggered consumer surcharges and a 15% drop in wager counts
Who Gets Hit: The $75 Million Threshold
The proposed 45% rate wouldn’t apply to every sportsbook in Arizona. It specifically targets “large operators” handling at least $75 million in monthly wagering volume. Based on November 2025 data from the Arizona Department of Gaming, that threshold captures exactly four operators.
| Operator | November 2025 Handle | Affected? |
|---|---|---|
| FanDuel | $313.8 million | Yes — 45% rate |
| DraftKings | $302.3 million | Yes — 45% rate |
| BetMGM | $102.5 million | Yes — 45% rate |
| Fanatics | $84.3 million | Yes — 45% rate |
| bet365, Caesars, Hard Rock Bet, ESPN BET | Below $75M each | No — stay at 10% |
Together, these four operators control roughly 75% of Arizona’s sports betting market. The remaining books—including bet365, Caesars, Hard Rock Bet, and ESPN BET—would continue paying the current 10% rate, creating a two-tier system that effectively penalizes market dominance.
REVENUE VS. HANDLE CONFUSION
The budget text specifies “average monthly revenue” as the trigger threshold, not handle. This creates confusion: no Arizona operator has ever generated $75 million in revenue in a single month. FanDuel and DraftKings typically report $15M–$35M in monthly revenue. If the threshold is actually handle (total amount wagered), then all four operators clearly qualify. Caesars would likely hit the threshold during peak NFL months.
The Illinois Playbook: A Warning From the Midwest
Arizona’s tiered structure mirrors what Illinois implemented under Governor J.B. Pritzker in 2024, where a graduated tax rate tops out at 40% for operators generating more than $200 million in annual revenue. Illinois then layered on a per-bet tax in 2025, charging operators $0.25 for every wager up to 20 million bets, then $0.50 per bet thereafter.
The result has been instructive—and contentious. FanDuel and DraftKings responded by passing the cost directly to customers, adding $0.50 surcharges to every bet. Fanatics and Caesars implemented $0.25 fees. Other operators raised minimum bet amounts, with some requiring $5 or even $10 minimums.
WAGER COUNTS DROPPED
Illinois wager counts fell 15% year-over-year in fall 2025 after surcharges took effect. Bettors placed fewer but larger bets to avoid per-wager fees.
TICKET SIZE BALLOONED
Average ticket size in Illinois jumped 28% in September 2025—from $36.20 to $46.44—as bettors consolidated wagers to minimize surcharge impact.
ALREADY MOVING TO REPEAL
Illinois Rep. Dan Didech filed HB5143 last week to repeal the per-bet tax, calling the wager count decline “alarming evidence that tax hikes are creating a lose-lose situation for fans.”
The Illinois experience offers Arizona bettors a preview of what a 45% tax rate could mean in practice: operators don’t absorb tax increases—they pass them along. And when they do, betting behavior shifts in ways that can undermine the revenue projections the tax was designed to hit.
The “Fee” vs. “Tax” Constitutional Question
Hobbs faces a significant constitutional hurdle. Arizona requires a two-thirds supermajority in both legislative chambers to pass any measure that creates “a net increase in state revenues.” Republicans control both the state House and Senate and have historically opposed corporate tax increases.
But the governor’s office is preparing a legal workaround. Spokesman Christian Slater has argued that because the sportsbook charge is structured as a regulatory “fee” rather than a traditional tax, it could pass with a simple majority vote.
WHY THE FEE VS. TAX DISTINCTION MATTERS
If It’s a “Tax”
- Requires two-thirds supermajority
- Republicans can block it easily
- Proposal is likely dead on arrival
If It’s a “Fee”
- Only needs a simple majority
- Hobbs needs to flip just a handful of GOP votes
- Path to passage opens significantly
This distinction will almost certainly face legal challenges. Courts would need to determine whether a charge that generates $145 million in its first year and is calculated as a percentage of revenue qualifies as a regulatory “fee”—or whether it functions as a tax regardless of its label.
Where Arizona Would Rank Nationally
At 45%, Arizona would vault from the fifth-lowest sports betting tax rate among states with competitive mobile markets to the seventh-highest. The shift would be dramatic.
| State | Tax Rate | Notes |
|---|---|---|
| New York | 51% | Highest among competitive mobile markets |
| New Hampshire | 51% | Single-operator model (DraftKings) |
| Rhode Island | 51% | State-run |
| Oregon | 51% | State-run |
| Delaware | 50% | State-run |
| Illinois | Up to 40% + per-bet tax | Effective rate above 50% for top operators |
| Arizona (Proposed) | 45% | For operators with $75M+ monthly volume |
| Virginia | 15% | — |
| Arizona (Current) | 10% | Fifth-lowest nationally |
| Colorado | 10% | — |
| Indiana | 9.5% | — |
| Nevada | 6.75% | Lowest among major markets |
The Hobbs administration argues Arizona’s low rate is a competitive disadvantage. The budget states: “Low privilege fees and generous tax deductions have allowed these operators to achieve record corporate profits.” The administration frames the increase not as punitive, but as Arizona collecting its fair share from an industry generating billions in annual handle.
Arizona’s Market: Seventh-Largest and Growing
Arizona has emerged as one of America’s most successful sports betting markets since launching in September 2021. The state became the eighth to surpass $2 billion in all-time gross revenue in February 2025 and ranks seventh nationally in 2025 handle.
| Rank | State | 2025 Handle (through Nov) |
|---|---|---|
| 1 | New York | $26.33 billion |
| 2 | Illinois | $14.2 billion |
| 3 | New Jersey | $12.23 billion |
| 4 | Ohio | $10.31 billion |
| 5 | Pennsylvania | $8.86 billion |
| 6 | Massachusetts | $8.53 billion |
| 7 | Arizona | $8.31 billion |
| 8 | Nevada | $8.07 billion |
FanDuel and DraftKings have been locked in a tight battle for Arizona market leadership, separated by just $42.4 million in all-time handle. Both are on pace to exceed $10 billion in total Arizona wagers once December 2025 figures are reported. The state hit a record $967 million in handle in October 2025 alone, generating approximately $5.2 million in tax revenue at the current 10% rate.
Industry Pushback and the Offshore Argument
Opposition from operators is expected to be fierce. The Sports Betting Alliance—representing DraftKings, FanDuel, BetMGM, Fanatics, and bet365—has already pushed back against tax increases in other states, warning that excessive taxation drives bettors to offshore operators who pay nothing to the state and offer none of the consumer protections.
“A 350% increase would inevitably drive legal bettors back to the offshore market, ultimately shrinking the very ‘pie’ the Governor hopes to slice.”
— Republican State Representative Jeff Weninger
Joe Brennan Jr., one of the originators of the legal challenge that overturned PASPA and enabled legal sports betting nationwide, also expressed concern on social media about the proposal’s potential impact on the regulated market. The industry’s core argument is straightforward: push taxes too high and you don’t collect more—you collect less, because bettors migrate to unregulated alternatives.
The Political Calculus: Robin Hood Framing
Hobbs has bundled the sports betting tax increase with popular relief measures, including eliminating state taxes on tips and overtime pay. This creates what Gaming America called a “Robin Hood” framing—forcing Republicans to choose between protecting sportsbook profit margins and delivering tax breaks to Arizona workers.
The governor’s $17.7 billion budget relies on $950 million in “uncertain funds” to offset anticipated federal funding cuts under the Trump administration. The sports betting increase represents roughly 15% of that gap—a meaningful but not decisive piece of a much larger fiscal puzzle.
Whether the proposal survives the legislative process—or the likely legal challenges over the fee-vs-tax distinction—remains uncertain. Arizona’s budget must take effect before the fiscal year begins on July 1, and the Republican-controlled legislature is expected to release its counter-proposal in the coming weeks.
What This Means for Arizona Bettors
If the Illinois experience is any guide, a 45% tax rate in Arizona won’t be absorbed quietly by FanDuel and DraftKings. Bettors should watch for per-bet surcharges, higher minimum wager requirements, reduced promotional offers, and less competitive odds. The federal gambling loss deduction cap already limits how much bettors can write off—adding operator surcharges on top would compound the cost of legal betting in the state.
The broader pattern across states is clear: as sports betting matures from a growth-phase industry into an established revenue source, governments are ratcheting up tax rates. Arizona is simply the latest state to reach for a bigger slice of the pie—and the question, as always, is whether that larger slice comes from a smaller pie.
KEY TAKEAWAYS
- A 350% rate increase targets the Big Four — FanDuel, DraftKings, BetMGM, and Fanatics would pay 45% while smaller operators stay at 10%
- Illinois is the cautionary tale — Similar tax hikes led to consumer surcharges, a 15% drop in wager counts, and lawmakers already moving to repeal
- The fee-vs-tax legal question is the real battleground — If courts call it a “fee,” it needs only a simple majority; if it’s a “tax,” it needs two-thirds and is likely dead
- Revenue projections assume stable behavior — $145M in FY2027 assumes bettors don’t migrate to offshore books or reduce activity in response to surcharges
- Arizona bettors should expect pass-through costs — History shows operators don’t absorb tax increases; they pass them to customers via surcharges, higher minimums, and worse odds
- The budget is part of a larger fiscal strategy — The sports betting increase fills roughly 15% of a $950M gap from anticipated federal funding cuts
Sources
- FY2027 Executive Budget Proposal — Office of the Governor, State of Arizona
- Arizona Department of Gaming — Sports Betting Reports — Arizona Department of Gaming
- HB5143 — Per-Bet Tax Repeal — Illinois General Assembly
- Arizona Governor Proposes 45% Sports Betting Tax — Gaming America
