Last summer, Ohio Gov. Mike DeWine lobbied for the sports betting tax rate to double from 10% to 20%.
The Republican wanted the change after he saw operators advertising in a manner he believed targeted underage bettors. It took some convincing for fellow lawmakers to get on board with the change.
But ultimately, DeWine signed a new budget that became law on July 1, 2023. The budget contained language that gave the governor his wish. The tax rate on Ohio online sportsbooks is now 20%. Additionally, the brick-and-mortar operators got an increased tax bill as well.
Increased tax rates raise the cost of doing business in a given jurisdiction. The higher the tax rate, the less profit there is to spread around.
However, there are two months of available data following DeWine’s increase. And there is no reason to believe the increased rate will hinder sports betting revenue.
Tax rate doubled during lulls of summer months
During the summer months, sports betting volume decreases. Mostly because there are just fewer games to bet on. Aside from Major League Baseball games, there isn’t much for the public to bet on.
And it was during that timeframe that DeWine’s rate hike took hold. July was the first month with a 20% tax bill. It also marked one of the worst months in the history of the state’s industry.
In July, retail and online sportsbooks combined to accept $331.1 million in wagers. It was the lowest handle of any month since sports betting launched in January.
On the other hand, an abnormally high 11.2% hold rate left operators with $37.15 million in taxable revenue. Despite the lower betting volume, revenue increased from June’s $32.8 million.
But right on cue, the market ticked up as the calendar inched closer to football season. In August, the total handle jumped to $378.8 million and taxable revenue of $40.8 million.
Furthermore, sportsbook promotional spending jumped to $15.2 million from July’s $10.7 million. It was the first time promotional spending increased in the eight months of sports betting. It had been in a steady downtrend since sportsbooks spent $319.5 million on acquiring new customers during January’s launch.
Promo spending indicates operators don’t care about 20% tax rate
Operators use promotional spending to fund Ohio sportsbook bonuses. These bonuses are what attract new bettors to the site.
In some states, operators can use this spending as a tax write-off. But the Ohio sports betting legislation doesn’t allow operators to write off any of these expenses until 2027.
If sportsbook operators thought the new tax rate would greatly reduce profits, they wouldn’t be spending money they can’t write off.
Projections for handle and revenue are still mostly intact
When DeWine signed the legislation legalizing sports betting nearly two years ago, Eric Ramsey, a gambling data analyst for PlayOhio, projected anywhere between $9 billion and $12 billion in annual handle.
He also predicted between $700 million and $900 million in gross revenue. But that was based on a 10% tax.
Through the first two-thirds of 2023, Ohioans have wagered more than $4.5 billion with sports betting operators. With eight months of available data, Ramsey thinks the annual handle will be closer to $7.5 billion.
However, he says that has nothing to do with the tax rate.
“The change to the tax rate shouldn’t have a meaningful impact on the long-term outlook for sports betting in Ohio,” Ramsey said. “The new 20% rate is still tenable for operators – even moderate compared to New York and Pennsylvania – and the allowance for promotional deductions in the future will help mitigate some of the financial impact.”
Ramsey added that the coming months will give a clearer picture of what’s in store for Ohio sports betting.
“The pace is obviously impressive so far, putting Ohio on target to finish its first year of legal sports betting among the top five US markets,” he said. “That blistering start in January gave us a glimpse of the potential and these busy fall betting months should provide a better sense of Ohio’s true ceiling.”
If the handle and revenue aren’t going to be affected, then the only thing that will increase is tax revenue.