The Curious Case Of Ohio’s Ever-Evolving Sports Betting Tax Rate

Ohio’s sports betting tax rate has been at the center of an unexpected tug of war between members of the same political party that worked for months to nail down and pass the legislation.

Fourteen months after signing sports betting into law and only six weeks into legal Ohio sports betting, Republican Gov. Mike DeWine pushed for doubling the tax rate from 10% to 20%.

The February move did not sit well with the GOP state representative who sponsored the legislation, Bill Seitz.

Fast forward five months and the tax hike successfully maneuvered its way through the necessary committees and was passed by the House and Senate. It went into effect July 1.

So, what’s at the center of this early-market about-face for Ohio Republicans? And what’s at stake for Ohio sportsbooks and bettors?

DeWine’s office says sports betting tax hike a response to compliance issues

It only took six weeks of legal sports betting for Gov. DeWine to not only rethink his position on the state’s relatively low 10% tax rate but to formally propose doubling it.

It’s rare for a governor to so quickly amend legislation passed by his own party — which he signed into law himself. A GOP-pushed tax hike on businesses on top of it all? Quite peculiar.

In February, a DeWine spokesperson told PlayUSA senior lead writer Matthew Kredell that the proposed tax increase was a response to sportsbooks skirting state rules on sports betting advertising.

“It is part of the package designed to encourage better compliance with the rules. Ohio is serious about enforcing the regulations passed by the Ohio General Assembly.”

But Ohio was already dropping the hammer on sportsbooks during the early weeks of the new market. The Ohio Casino Control Commission dished out six-figure fines to four different sportsbooks for things like using “free bet” language rather than “bet credits” and advertising to people under 21.

And, here’e the thing: The OCCC did not face pushback from the books. Some of the biggest sportsbooks in the state, including DraftKings Sportsbook OH, BetMGM Sportsbook Ohio and Caesars Sportsbook, appeared at Ohio Casino Control Commission meetings to accept the fines and profess their dedication to Ohio’s rules and responsible gambling in general.

It’s hard to see what changed between Ohio raking in over $1 million in sportsbook fines in its early months and the last-minute doubling of the sportsbook tax rate at the budget deadline on June 30.

GOP rift over sportsbook tax rate?

This week, DeWine spokesman Dan Tierney told Cleveland.com:

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

From the outside, it appears that Ohio sportsbooks had already gotten the message. The OCCC has not fined a sportsbook for a compliance violation since April, and that was a unique case involving past transgressions by a sportsbook that hasn’t even applied for an Ohio license. You have to go back to March when BetMGM was hit with a $150,000 fine for violating advertising rules to find documentation of any serious transgression.

Seitz, a powerful Republican from Cincinnati who sits on five committees, seems unconvinced, if not a tad perturbed, by the explanation out of DeWine’s office.

Sietz told PlayUSA earlier this month:

“The governor’s argument, which I didn’t buy for a minute, is ‘Look at how much money these folks are spending on advertising. They’re trying to get people hooked on sports gaming and mobile apps. We need to curb the excessive advertising by the mobile app licensees, and how better to do that than double the tax rate.’”

He also noted the original reasoning behind setting a relatively low tax rate — an argument at the crux of legalizing sports betting altogether.

“The original concept, which I worked on, was that we wanted to keep the tax rate low to convince people to leave their illegal books and go with the legal, regulated entities,” Seitz said. “That was the whole idea. So when you double the tax rate, that’s maybe not the smartest thing to do.”

Ohio Republicans have near total control over legislation in Columbus, including the power of DeWine’s veto pen.

Still, the curious case of which GOP member gets his way will be one to watch in the coming months.

The good news is that, in the meantime, sportsbooks and sports bettors are unlikely to feel much, if any, pain.

Ohio sports betting tax rate could still end up less than 20%

Ohio’s nascent sports betting market hit the ground running, racking up a record $1 billion in January betting volume and pushing $3.5 billion through five months. It is on pace to be a top-five state in the U.S. this year and to push for top-three status sooner than later.

Bigger sportsbooks are not going to change course in Ohio with so much market share on the line. Plus, even smaller books should feel incentivized to stay the course until the final tax rate is nailed down.

The budget passed last week calls for the creation of a new committee to study the industry, and it may also suggest a tax rate somewhere between 10% and 20%.

Should the tax hike remain, or the committee suggest something near 20%, the doubling of sports betting taxes could affect some of the smaller books in the market.

That will take time to play out, of course, but only eight of Ohio’s 18 sportsbooks secured at least a 1% market share in May.

Every sportsbooks is doing its own balancing act in the early months, offering promotions and bonuses to gain customers but sacrificing early profits in the process. Smaller books could be squeezed out of the market in the coming years if they can’t make the numbers work, in part because of the unexpected doubling of their tax bill.

The tax rate could also deter new sportsbooks from the market, although Ohio’s 18 online sportsbooks represent a fairly sizable start. Most of the bigger sportsbooks are already in Ohio, clawing for their share of the revenue — and paying whatever tax rate Ohio politicians eventually deem appropriate.