HomeOhio Sports Betting NewsTax Hike in Ohio Sports Betting Landscape Could Boost Illegal Wagering

Tax Hike in Ohio Sports Betting Landscape Could Boost Illegal Wagering

On Jan. 1, 2023, the first legal Ohio sportsbooks took their initial bets. Exactly six months later, those same sportsbooks now face a 20% tax rate instead of 10%.

Image: IMAGO / Panthermedia

At first glance, the change would seem to greatly benefit Ohio residents. After all, the state received $50 million in sports betting taxes in those six months – so $100 million would have been even better.

But there are numerous problems with such a superficial analysis:

  • The significant rise in the cost of doing business in the state could lead to a number of smaller sportsbooks ceasing operations. That would take a modest toll on the actual tax revenue figures, and less competition does not benefit the state’s gamblers.
  • Promotions and marketing efforts inevitably will decline. That means fewer free bets for existing customers and fewer lucrative signups for new customers.
  • If sportsbook operators find it difficult to make a profit under the new system, it’s likely they would begin offering poorer odds to try to improve the “hold” – the amount of money left over for the books after paying winning customers. That means fewer Ohioans making any money on wagers – and more getting into significant trouble sooner if they gamble irresponsibly.
  • Newer operators weighing which states to choose to begin with likely would pass on Ohio – because if lawmakers and Gov. Mike DeWine can boost the rate so high and so quickly in just six months, what’s to stop them from doing it again in another six months?
  • Supporters of legalized sports betting who focus on efforts to weaken the state’s illegal gambling operations point out that such operators – who don’t pay any gambling taxes to the state of Ohio – can lure frustrated customers of the legal markets more easily to their side because their odds seem more alluring than ever.

A Penalty for Sportsbook Operator Rules Violations?

Dan Tierney, a spokesman for Republican Mike DeWine, reminded cleveland.com this week that DeWine first proposed a boost in the tax rate in February, only the second month of operations for the legal sportsbooks.

Barstool Sports, Caesars, BetMGM, and DraftKings all had been fined by that point for a variety of violations of the state’s sports betting regulations – clearly angering DeWine.

“The companies that are doing the massive advertising need to be aware that they’re being looked at very closely by the governor and the Casino Control Commission in regard to statements that they are making,” DeWine told reporters on Jan. 3.

“We believe that at least on several occasions they’ve already crossed the line. My message to them is that this will not be tolerated in the State of Ohio.”

The most heavily-impacted sportsbook operator was DraftKings Ohio, which was fined $500,000. Regulators found that the company sent out numerous promotional materials to residents under the legal gambling age of 21, and that DraftKings also both improperly advertised misleading “risk-free” bets while also failing to include a message in ads about problem gambling.

Barstool’s infraction – leading to a $250,000 fine – stemmed from its live event last November at the football stadium of the University of Toledo. Sportsbooks in Ohio cannot advertise on or near a college campus, and they also cannot target customers under age 21 as Barstool conceded it did.

“We wanted to send a message to the market that Ohio was not the Wild, Wild West,”

Tierney told cleveland.com in terms of the boosting of the tax rate.

Sports Betting Alliance, an industry group that represents DraftKings, FanDuel, BetMGM, and Fanatics, issued a statement on the tax rate hike:

“While we strongly disagree with this decision, sports betting’s success in Ohio demonstrates the promise of creating a safe and regulated market for online gaming – both in terms of combating illegal and unregulated gaming enterprises and providing meaningful support for state priorities,” the statement read.

How Ohio’s Tax Rate Stacks Up

It’s worth noting that the original gambling tax rate for sportsbooks was one of the lowest in the U.S., while the new one is slightly above the industry average.

It’s still far below neighboring Pennsylvania’s rate of 36%, but above its other neighbors in Michigan, Indiana, West Virginia, and Kentucky. Those rates range from 8.4% to 14.25%.

Ohio is the first U.S. state to change its sports betting tax rate, and the next one to do so might go in a different direction.

The most buzz of a possible rate change centers in New York, where a 51% tax rate is considered to make it impossible for any sportsbook to make an annual profit even after abandoning promotional spending.

There is some sentiment to change it to closer to the rate in neighboring Pennsylvania.

The initial low tax rate in part was to assuage sportsbook operators concerns about the state’s onerous and complex licensing fee plan, which in some cases cost operators millions to enter the state.

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