Operators invest millions of dollars, after all, based in significant part on the understanding of costs that include how much tax will need to be paid on revenue.
But the Ohio sports betting tax rate not only was raised within six months – it doubled, from 10% to 20%, as of July 1, 2023.
The impact of the higher tax rate can’t be fully reviewed until the first half of next year, when there will be a chance to compare the betting handle each month with the total for the month of betting 12 months earlier (Jan. 1 was the day that Ohio sportsbooks launched).
A stagnant handle, or a declining one, would suggest that the new tax rate was having a negative impact on the state.
Still, we can see that in July, the Ohio betting handle was $331.1 million – a far cry from the January launch of $1.1 billion – and that August sporting events produced a handle of $378.8 million.
However, those are the two slowest betting months of the year in every state, with virtually no football, and with no basketball or hockey – and that rate of decline is not very unusual.
Also, sportsbooks collectively enjoyed a “hold percentage” from losing bets exceeding 10 percent each month. So the books took in $37.2 million in revenue in July and another $40.8 million in August.
The change in the tax rate meant that the state took in $8.2 million in taxes or more than $4 million than it would have with the old tax rate.
Sportsbooks’ Promotional Spending Headed Back Up?
Another important but less-publicized factor is the level of promotional spending that Ohio online sportsbooks offer each month.
After bottoming out at $10.7 million in July, the figure jumped to $15.2 million in August as the NCAA and NFL season launches began looming.
And it wasn’t just one company bucking the previous downward trend. According to the Ohio Casino Control Commission, daily fantasy sports giants-turned-sportsbooks DraftKings and FanDuel led the way with $4.8 million and $3.2 million, respectively.
Fanatics, which had just arrived in Ohio, theoretically might have been a new sportsbook that elected to be more cautious because it knew of the distinct possibility of a higher tax rate, unlike other operators, before its full launch.
Yet Fanatics ranked No. 3 among Ohio sportsbooks with $2.8 million in promotions. That’s particularly noteworthy because Fanatics reported just half that amount – $1.4 million – in revenue for the month.
That indicates that the company expects Ohio to be a key state as they belatedly try to climb the crowded ranks of sportsbooks nationally. If promotional spending remains strong this fall, that would be more evidence that the tax boost will do almost nothing but simply double the state’s share of the overall betting revenue.
There would be a certain irony to that, given that the reason for the tax hike offered by Gov. Mike DeWine was that he was annoyed at the high level of promotional spending that the Ohio sportsbooks invested as the gambling launched in January.
However, the American Gaming Association and many other industry insiders see promotional spending as a feature, not a bug. That’s because the promotions no doubt lure many longtime gamblers from illegal offshore online websites to legitimate ones.
That offers consumers legal protection from being defrauded while also raising the amount of tax revenue raised – the illegal books pay no taxes at all.
Which Sportsbooks Won the Month of August – and Are Online Casinos Coming?
DraftKings Ohio, while leading the way with $133.9 million in wagers taken in August, did not reach the desired 10% hold figure, settling for $12.6 million in revenue.
FanDuel – the most aggressive promoter of multi-leg parlay wagers that also are the leading “cash cows” of profits for operators – managed $15.3 million in revenue on just $115.9 million in the betting handle.
Bet365, a lesser-known brand nationally, has settled in as the No. 3 sportsbook in Ohio – though with a relatively meager $27.6 million in wagers and an industry-low rate of return (8%) of $2.2 million.
The recommendation for the tax rate hike came from the 11-member Study Commission on the Future of Gaming in Ohio, which has been issuing periodic reports to the Ohio General Assembly since it was established in April. The commission is scheduled to disband in mid-2024.
Ohio House Finance Committee Chair Jay Edwards (R-Nelsonville), who led the charge for the creation of the commission, is expected to consider changes in horse racing wagers, such as whether to follow New Jersey’s lead and introduce “fixed odds” wagering alongside the traditional parimutuel betting pools.
Ohio residents new to gambling quickly see that whatever the odds are on the sports bet they make, the odds on their completed bet never change, even as circumstances do. So, if the opposing team’s quarterback is announced as “out” for the game with a late-week injury, bettors who took the other team enjoy a more favorable point spread than the one revised to account for the loss of the quarterback.
But in horse racing, that 10-to-1 relative longshot you picked 10 minutes before the race at times could post odds more like 3-to-1 just as the race starts – the result of last-minute or even last-second wagers by wealthy gamblers.
The study also will look at a new form of gambling – online casino play – that has proven very lucrative for state treasuries in neighboring Pennsylvania and Michigan.
“We’re hearing a lot about i-Lottery,” Edwards said of another gambling innovation that has launched in several states. “There’s some members that want it, there’s some members that don’t. However, I think there’s a lack of understanding of what that actually would mean.
“We’re hearing a lot about i-gaming and i-casinos. We need to study this before we just go. And we may be looking for additional revenue sources the next two years.”