If states genuinely are the laboratories of democracy, Ohio lawmakers can either be seen as mad scientists or brilliant innovators based on their approach to taxing legal sports betting.
Unlike most other states with regulated sports betting, sportsbook operators in Ohio are not getting massive tax breaks for promotional spending in the early days of the new market launch. Instead, legislators in Columbus opted for a low tax rate of 10% with a gradual implementation of promotional deductions in the coming years.
In the simplest terms, Ohio is opting to fully tax sportsbook operators now but will grant the industry tax breaks in the future.
The winds of change are coming
In 2027, sportsbook operators can deduct up to 10% of their promotional spending from taxable revenue. Beginning in 2032, the deduction rate will increase to 20%.
Legal sports betting in Ohio went live on Jan. 1, 2023. In the first month, more than $1.1 billion was legally wagered. The $208.9 million in revenue is a monthly high for any legal U.S. jurisdiction.
Ohio sports betting taxes blow away other states
Ohio collected just under $21 million in taxes in January. Compare that to a state like Maryland, which launched sports betting in November 2022 and allows a nearly 100% deduction of promotional spending for a year. Maryland sportsbook operators have paid less than $3 million in taxes since launch.
Promotional spending includes deposit matches, bonus bets and other financially based incentives given to players. Ohio sportsbooks “gave away” nearly $320 million in January, according to data from the Ohio Casino Control Commission.
Sportsbook operators, particularly online companies, have employed the same basic strategy in the five years since legal sports betting has been permitted around the U.S. They entice players in a new market with financial incentives to acquire and retain customers while building brand loyalty.
How Ohio had a leg up by waiting to launch legal sports betting
As a late entry into the regulated sports betting world, Ohio was able to sidestep some of the gaming industry’s reasoning for promotional tax breaks.
For one, the big brands, such as FanDuel, DraftKings and BetMGM, are already well-known by customers in Ohio. With established identities, those books should not have to spend as much (in theory).
Secondly, the expected volume in Ohio (which has, thus far, been accurate) far exceeds any recent state sports betting launch, with the exception of New York in January 2022. Operators in Ohio are not competing over a small market but a massive revenue producer that will likely only grow in the coming years.
Lastly, the state’s low tax rate of 10% is attractive to not only the giants of sports betting but smaller operators as well. This increases competition and supply in the state, which should catalyze growth.
Mo’ money, mo’ sports betting taxes
Some politicians are already looking at the newfound revenue and determining it’s insufficient. Republican Gov. Mike DeWine wants to double the current tax rate on sports gambling revenue, according to his 2024-2025 budget proposal.
With Ohio on track to be among the nation’s top-five largest legal sports betting markets, tax collections for 2023 are projected to exceed $100 million. Based on the early returns, PlayOhio forecasts the market to trail only New York and possibly Illinois as the country’s largest (and most profitable).