The country's top sportsbooks have filed a lawsuit against the city of Chicago, challenging a new local sports betting tax set to go into effect in the new year.

The Sports Betting Alliance – a coalition of sports betting operators Bet365, BetMGM, DraftKings, FanDuel, and Fanatics Betting and Gaming – claims in its lawsuit that the city does not have the authority under Illinois state law to impose its own tax on sports betting.

The 2026 budget plan approved by the City Council earlier this month would impose a 10.25% on the adjusted gross receipts from all sports bets placed within the city.

Sportsbook operators already pay between 20% and 40% in state taxes, in addition to per-wager fees of 25 cents on each of the first 20 million bets placed, and 50 cents for each bet thereafter.

The SBA's lawsuit claims the state's Sports Wagering Act does not give local governments the authority to impose their own taxes on top of the state's sports betting taxes, or to require local licenses to generate revenue from sports betting.

"The State—not the City—has sole authority to license and tax online sports wagering in the State of Illinois.  The Illinois Constitution reserves authority over licensing for revenue and income-based taxation to the State unless expressly delegated.  The Illinois General Assembly has never authorized the City to impose licensing fees or income-based taxes on online sports wagering," the lawsuit claims.

In addition to the 10.25% sports betting tax included in the city's budget, the City Council approved a requirement for annual licensing fees between $5,000 and $50,000 for sports betting operators.

The SBA's lawsuit claims, because the city's budget was approved on Dec. 20, city officials have not had time to issue any licenses yet, leaving sports betting operators in the position of having to choose between continuing to operate without a city license starting Jan. 1, or to shut down operations in Chicago.

The lawsuit claims that would drive bettors to illegal and unregulated betting operations.

"Because those alternatives are untaxed, forcing SBA members to "go dark," would deprive Illinois, and, derivatively, Chicago, of significant revenues under existing state tax laws from online sports wagering that has been legal in Illinois and in Chicago since 2019," the lawsuit claims

The lawsuit – filed Tuesday in Cook County Circuit Court – seeks a temporary restraining order blocking the city from enforcing its new sports betting tax and licensing requirements, and a court order declaring them unconstitutional.

City officials did not immediately respond to a request for comment on the lawsuit, but some Illinois state lawmakers earlier this year moved to block the city's sports betting tax and licensing requirements.

State Rep. Daniel Didech (D-Buffalo Grove) and State Rep. Curtis Tarver (D-Chicago) in October introduced legislation that would expressly 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 a press release. "Chicago's proposal will hurt consumers, drive vulnerable people to predatory illegal markets, and reduce state tax revenue. The city should work collaboratively with the state to ensure sound, informed policy decisions are made on this issue."

The legislation has yet to come up for a vote.