EXCLUSIVE: Sports Betting ETF CEO Sizes Up Trump's Big Beautiful Bill, Higher Taxes, ESPN Bet Success

The sports betting sector is one of many that could be impacted by President Donald Trump's so-called “Big Beautiful Bill.”

Roundhill Investments CEO Dave Mazza shares his thoughts on the bill's impact with Benzinga and how it could impact the stocks that are part of the Roundhill Sports Betting & iGaming ETF (NYSE:BETZ). Mazza also discusses higher taxes for Illinois sportsbooks, the next catalysts in the sector, potential sector consolidation, and whether ESPN Bet will be a success.

Big Beautiful Bill Impact: The new One Big Beautiful Bill could change the sector for large gamblers, sports bettors and daily fantasy players.

"Beginning with the 2026 tax year, the One Big Beautiful Bill caps the deductibility of gambling losses at 90 percent of winnings,” Mazza told Benzinga. “A bettor who wins and loses $100,000 in the same calendar year will still owe federal income tax on an imputed $10,000 profit – a sharp departure from the long-standing rule that allowed dollar-for-dollar offsets under IRC 165(d)."

The Roundhill CEO said the gaming lobby claims this amounts to a tax on the volume of players in the sector, who "already operate on razor-thin margins."

Congress members have already worked on rescinding this part of the Big Beautiful Bill, Mazza added, citing the FAIR Bet Act filed by Rep. Dina Titus (D-Nev.). He added that the American Gaming Association and members of the Republican Party have shown support for the act.

"The smart money in Washington pegs the odds of a reversal in the next twelve months at better than even, provided a larger tax vehicle advances."

Mazza said if the 90% cap remains, it will be professional sports bettors, poker players and daily-fantasy "sharps" that are most impacted. Experts warn that this could lead to liquidity shifting offshore and away from Las Vegas.

"While the mass-market sportsbook would muddle through, destination casino markets that rely on premium play would feel a non-trivial pinch."

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Illinois Increases Fees: The state of Illinois is the first to place an additional levy on bets wagered. The state is charging 25 cents for each of the first 20 million online wagers an operator makes in a fiscal year and 50 cents for every bet after that amount.

DraftKings Inc. (NASDAQ:DKNG) and Flutter Entertainment (NYSE: FLUT), which operate the two largest US online sportsbooks, have announced they will pass the fees onto consumers in the state.

"By passing the fee straight through, the books protect most of the EBITDA that would otherwise be lost, but they also risk nudging price-sensitive customers toward rival states or the gray market," Mazza said, who added that the math on the levy is "punitive enough" for DraftKings and Flutter to pass the surcharge on.

The impact could mean fewer bettors placing low-stakes wagers, and sportsbooks may increase their minimum bet sizes in the state, he noted.

Next Catalysts for the Sector: For the sports betting sector, the biggest catalyst for years has been the launch of new states. Benzinga said new state launches have been stalling.

"Most of the easy wins are booked as more than 80 percent of U.S. adults already live in a legal market, so remaining battles are politically thorny," Mazza said.

The Roundhill CEO said Texas, Minnesota and Alabama had sports betting legislation that experienced setbacks. Oklahoma and Georgia look more promising going forward.

"In short, operators should plan for incremental launches rather than a single blockbuster state in the coming years," he said.

Mazza added that calls for consolidation in the sector have minimized, and with DraftKings and FanDuel having sizable market shares, there is "limited oxygen for mid-tier brands."

"Regulators would likely block any horizontal merger between top-five books, so expect more tuck-in deals for tech, data and iCasino assets rather than headline-grabbing megamergers."

Another potential catalyst is the continued growth of live micro-betting. Mazza said bettors are turning more to betting on items like every pitch in baseball, every possession in basketball and more. These increased betting options could help offset lower betting volume during the current season, which does not include NFL and NCAAF games.

"These engagement tools are now strategic imperatives rather than nice-to-haves."

ESPN Bet Success: Too Early To Tell? ESPN Bet was launched by PENN Entertainment (NASDAQ:PENN) through a licensing partnership with The Walt Disney Company (NYSE:DIS) in November 2023. The sportsbook has made ground in several states, but the success may be smaller than some expected, given the massive size of ESPN and the brand recognition.

"Eighteen months in, ESPN Bet is neither runaway success nor outright failure," said Mazza, adding that estimates show ESPN Bet having 3% market share for U.S. sports betting handle after initially launching with around 7% share.

The sportsbook's market share is shy of double-digit goals from Penn, but also better than the market share the casino company had when it ran the Barstool Sportsbook.

Penn's first-quarter financials also showed the best EBITDA since 2022 for the digital division, Mazza noted, which could suggest costs are stabilizing.

For Disney, Mazza said the partnership has brought the company brand-licensing revenue and "richer engagement data" with minimal risk. A 2026 opt-out window could become closely watched as Penn decides if it is winning with the current market share.

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