Gambling stocks, including DraftKings (NASDAQ:) and Flutter Entertainment (FLUT), tumbled Tuesday after news over the weekend that the Illinois Senate approved a 2025 budget that includes a new, progressive tax on sports betting operations.

Between now and June 1, the bill is expected to move through the Illinois House and become effective on July 1.

DraftKings is down more than 7% premarket, while London-listed shares of Flutter Entertainment have declined more than 4% so far in Tuesday’s session. Penn

Financial analysts at BTIG have projected that DraftKings and Flutter Entertainment could face a substantial increase in tax rates on gross gaming revenue next year under the new five-tier schedule. This is a significant shift from the 15% they paid this year.

However, they anticipate that the incremental direct costs could be balanced by variable cost controls, keeping margins/margin progression unchanged.

“Beyond Illinois, we don’t see a great deal of momentum with tax hikes in other states at the moment (MA just blocked a proposal to more than double their current rate last week), plus we’d note that the same playbook can be employed in other states to preserve margin,” said BTIG.

While they acknowledge that tax increases could still be explored and also implemented in other states over time, they don’t expect to see blanket increases that could meaningfully encumber TAM expansion.

“We believe politicians understand that fewer dollars for operators = fewer dollars for state budgets, plus higher risk of wagering dollars flowing back to unregulated and untaxed offshore operations,” adds the firm.

As a result, BTIG sees a low probability of snowballing tax rate increases and also doesn’t see a risk to Draftkings and Flutter Entertainment’s long-run margin targets.