Image credit: Source: operator statements and Illinois Gaming Board publications. Never imply stock depicts the actual event.
Sportsbook promotional spending, the free bets and deposit matches that built the US betting market, is being squeezed out of existence by tax, and the clearest proof is that FanDuel and DraftKings are now billing customers for the privilege of placing a wager. The industry spent five years teaching Americans that a new account came with hundreds of dollars in bonuses. It is spending 2026 unteaching that lesson, because state legislatures have rewritten the arithmetic that made the giveaway profitable.
The turning point is Illinois. Effective 1 July 2025, the state began charging sportsbooks a per-wager tax of $0.25 for the first 20 million bets an operator takes in a year and $0.50 on every bet after that, according to CBS Sports. The charge lands on the bet itself, not on revenue, applying as heavily to a $2 promotional flyer as to a $200 real-money wager: a free bet now carries a fixed cost the moment it is struck.
Why the per-wager tax broke the free bet
Promotional cost used to scale with revenue: a bonus produced turnover, turnover produced gross gaming revenue, and the operator was taxed on that revenue after the fact. A promotion that failed to convert cost little. The per-wager tax severs that link: every ticket carries a toll whether or not it ever makes the operator a cent.
That turns low-value promotional volume into a liability. Under a per-bet levy, thirty $1 bonus bets cost the operator up to $15 in tax before the customer has deposited a cent. Multiplied across millions of promotional wagers, the free bet stops being an acquisition tool and becomes a subsidy the operator pays the state to give money away.
FanDuel and DraftKings did the maths and reached the same conclusion. FanDuel began charging Illinois customers a flat $0.50 transaction fee on every bet. DraftKings matched it with a $0.25 to $0.50 fee, though it waives the charge on parlays of $10 or more, straight bets of $50 or more, bonus bets, and higher-tier loyalty members, CBS Sports reported. The exemptions give the strategy away: punish the low-stake, high-frequency behaviour promotions used to encourage, spare the high-value bettor who was always the real target.
The 40% ceiling changes what a bonus is worth
The per-wager tax sits on top of a progressive revenue tax that climbs from 20% on the first $30 million of Illinois sportsbook revenue to 40% above $200 million. At a 40% marginal rate, every retained dollar of gross gaming revenue is worth 60 cents, so every promotional dollar has to work 40% harder to justify itself. A bonus that was marginally profitable at a 15% tax rate is a loss-maker at 40%. The market did not just get more expensive to operate in, it got more expensive to market in, and marketing is the lever operators can pull fastest.
Illinois is not an outlier, it is a template. This publication has tracked how rising betting taxes are reshaping US operator economics, and the ratchet only turns one way: every treasury that watched Illinois raise real money from a per-wager charge has a worked example to copy. The rational response is not to fight each instance but to rebuild the business so it depends less on the thing being taxed: promotional volume.
The UK has run this experiment from the other end. The remote gaming duty rising to 40% does to online casino margins what the Illinois progressive rate does to sportsbook margins, and the British operator response has been the same: fewer bonuses, tighter wagering requirements, a harder line on bonus hunters. Two of the world's most developed markets are converging on the same conclusion from different tax structures: the generous welcome offer belonged to a subsidised growth phase, and that phase is ending.
Sportsbook promotional spending is becoming pay-for-performance
When free bets were cheap, an operator could hand them to anyone and sort out the economics later. Now the operator has to know that a marketing dollar produces a depositing, retained customer before it spends. Sportsbook promotional spending is being forced from a reach metric into a performance metric.
That is why affiliate marketing, which ties cost to verified depositing players rather than impressions, is gaining share of the mix even as gross promotional generosity falls, and why the industry's centre of gravity is moving from acquisition to retention. This publication has covered the shift from CPA to revenue-share deals that pushes acquisition risk onto partners, and the parallel move to treat player retention as the real growth engine. Both trends predate the tax squeeze; it accelerates them, because a business that cannot buy customers cheaply has to keep the ones it has.
The uncomfortable part for operators is that the free bet was never only a cost. It was the most effective conversion tool the industry ever built: a new bettor who risks the house's money is more likely to place a second bet with their own. Stripping out promotional intensity removes friction from the balance sheet and adds it to the funnel. Acquisition gets more expensive per customer even as total promotional spend falls, because the cheap volume that padded the top of the funnel is exactly the volume the tax makes uneconomic.
What operators lose when they stop paying to acquire
There is a competitive risk hiding in the discipline. When the two largest operators, together holding close to three quarters of Illinois handle, both add customer-facing fees, they open a door. A smaller operator willing to absorb the tax rather than pass it on can undercut the giants at exactly the moment price has become a live issue for bettors. Retreat by the leaders is an invitation to a challenger with a different cost structure or a longer investment horizon.
Prediction markets are the sharpest version of that threat. Exchange-style platforms operating under a federal commodities framework rather than state gambling licences pay no per-wager taxes, so they can offer pricing a taxed sportsbook cannot match. The legal fight over Kalshi's sports contracts in Illinois is, underneath the procedural arguments, a fight about exactly this asymmetry. A sportsbook cutting promotions to survive a per-wager tax is competing against a rival that does not pay it and does not need to cut, and the operators know it.
The tax code ended the free-bet era
The free-bet era is not ending because operators grew disciplined; the tax code made indiscipline unaffordable, and the smart operators are dressing up a forced retreat as a strategy. Expect three moves to spread from Illinois outward: customer-facing transaction fees in the next states that adopt per-wager charges, tested first on low-value bettors; promotional budgets shifting from broad welcome offers to targeted, retention-weighted, performance-priced spend justified account by account; and a widening gap between what a licensed, taxed sportsbook can offer and what an untaxed prediction market can, a competitive problem the industry has not solved.
The winners will be operators that already run on retention and unit economics, because they have the least to unlearn. The losers mistook a subsidised growth phase for a durable business model and built their marketing on a free bet the tax authorities have priced out of existence. Sportsbook promotional spending is not disappearing, but the version that defined the last five years is, and operators budgeting as though it will come back are budgeting for a market that no longer exists.
Related coverage: Rising betting taxes and US operator economics | UK remote gaming duty rises to 40% | The CPA to revenue-share shift | Player retention as the growth engine