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The nation’s largest online sportsbooks have marched into court, challenging Chicago’s plan to tax wagers placed within city limits, a move the companies liken to changing the rules midgame just as the clock strikes midnight on the new year.

At the center of the dispute is a sportsbooks betting tax lawsuit filed by the Sports Betting Alliance, a trade group representing Bet365, BetMGM, DraftKings, FanDuel and Fanatics Betting and Gaming. The coalition argues that Chicago lacks the legal authority under Illinois law to impose its own sports betting tax.

A New Tax, a New Fight

Chicago’s 2026 budget, approved by the City Council earlier this month, introduces a 10.25% tax on adjusted gross receipts from all sports bets placed within city boundaries. The plan also requires sportsbooks to obtain city licenses, with annual fees ranging from $5,000 to $50,000.

Sportsbook operators say the city’s action piles new burdens atop an already heavy load. Under existing law, they pay between 20% and 40% in state taxes, plus per-wager fees of 25 cents on each of the first 20 million bets and 50 cents for every bet after that threshold.

Legal Lines in the Sand

In its filing, the Sports Betting Alliance contends that Illinois’ Sports Wagering Act leaves taxation and licensing squarely in state hands. The lawsuit argues that local governments were never granted permission to impose additional taxes or licensing schemes on online sports betting.

“The State — not the City — has sole authority to license and tax online sports wagering in Illinois,” the lawsuit states, adding that the Illinois Constitution reserves income-based taxation and revenue licensing to the state unless lawmakers clearly say otherwise.

According to the complaint, the General Assembly has never authorized Chicago to collect licensing fees or impose income-based taxes on online sportsbooks.

A Looming Deadline

Because the city budget was approved Dec. 20, the lawsuit says Chicago officials have not had time to issue licenses before the tax is set to take effect Jan. 1. That delay, the operators argue, leaves them with a stark choice: keep operating without a city license or shut down betting in Chicago altogether.

Either option, the lawsuit warns, could push customers toward illegal and unregulated gambling markets.

“Because those alternatives are untaxed, forcing SBA members to go dark would deprive Illinois, and derivatively Chicago, of significant revenues,” the lawsuit claims, pointing out that legal online sports betting has operated in both the state and the city since 2019.

What the Lawsuit Seeks

Filed Tuesday in Cook County Circuit Court, the case asks a judge to issue a temporary restraining order blocking enforcement of the city’s new tax and licensing rules. The plaintiffs also want a declaration that the measures are unconstitutional.

City officials did not immediately respond to requests for comment. However, resistance to Chicago’s proposal has also surfaced in Springfield.

State Lawmakers Push Back

Earlier this year, State Reps. Daniel Didech of Buffalo Grove and Curtis Tarver of Chicago introduced legislation 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 an October statement. He warned the city’s approach could harm consumers, steer vulnerable bettors to predatory illegal markets and shrink state tax revenue.

The proposal has not yet come up for a vote, leaving the courts to decide the next play in a rapidly escalating showdown.