The recently approved budget in Illinois has introduced a new tax targeting sports-event prediction market contracts, which may lead to additional legal disputes. This budget also lays down a regulatory framework for daily fantasy sports (DFS).
As part of the FY2027 budget package, Illinois lawmakers have sanctioned a tax on sports-event prediction market contracts, potentially igniting further legal challenges between the state and market operators. Additionally, the legislation establishes formal licensing and taxation guidelines for DFS.
This tax comes at a time when Illinois is already engaged in federal litigation with the Commodity Futures Trading Commission (CFTC), which filed a lawsuit against the state in April concerning its attempts to regulate federally recognized prediction market operators.
Under the new provisions of Senate Bill 3019, the Illinois Sports Wagering Act has been amended to include “exchange wagers” as a new category of sports bets. This category encompasses agreements or transactions executed on a prediction market linked to sporting events.
Specifically, each exchange wager will incur a transaction tax of 1.75%, which will increase to 3.5% once a licensee surpasses five million exchange wagers in a fiscal year. Similar to the sportsbook tax implemented last year, this new tax is based on transaction volume rather than adjusted gross receipts.
Furthermore, the legislation reduces the initial master sports wagering license fee for online operators from $20 million to $15 million, while retaining a nonrefundable application fee of $250,000. However, SB 3019 does not clarify how these licensing rules apply to federally regulated prediction market operators.
The introduction of this tax coincides with ongoing disputes regarding prediction markets. In April, the CFTC filed a lawsuit against Illinois, claiming that the state's actions to regulate federally recognized markets interfere with the federal framework established by Congress for national swaps markets.
Illinois regulators have previously issued cease-and-desist orders to various operators, including Kalshi, Polymarket, and Crypto.com, asserting that sports-event contracts are gambling activities that fall under state jurisdiction.
Moreover, Illinois has faced legal action from operators as well. In December 2025, Coinbase initiated a lawsuit against the state, alongside Michigan and Connecticut. The new tax on exchange wagers could instigate further litigation, especially after Kalshi recently sued Minnesota following the enactment of a second prediction market ban.
The new legislation also replaces previous provisions related to prediction markets, which had already led to a separate federal lawsuit initiated by the CFTC against Minnesota.
In addition to the tax changes, the budget establishes a regulatory framework for DFS under the Illinois Gaming Board. This framework categorizes fantasy contest operators into two groups: small operators serving 7,500 or fewer patrons and large operators serving more than 7,500 patrons.
Small operators will be required to pay a $500 initial license fee, while large operators will incur a fee of $7,500. Licenses will remain valid for two years, and operators will also be subject to a 15% tax on their adjusted gross fantasy contest receipts. The law mandates the implementation of age verification, geolocation controls, anti-money laundering procedures, and identity verification measures for all operators.
DFS will be regulated separately from sports wagering, operating under its own distinct framework.