CLEVLEAND — The cost of doing business for sportsbooks in Ohio just went up substantially with the passing of the state's new budget, which doubles the tax sportsbook operators pay on their winnings after all bets are paid from 10% to 20%.
"It's unprecedented," said Robert Linnehan, an industry analyst and regulatory writer for XL Media. "No state has, to the best of my knowledge, ever increased its sports betting tax rate period let alone seven months into its sports betting program."
The initial 10% tax rate, agreed to after much study and debate, was the same as that of Washington, D.C. and West Virginia. It was just above Indiana at 9.5% and Michigan at 8.4% but well below New York, which charges a tax rate of 51% on winnings that come from physical sportsbooks but 10% for online.
Through the first five months of operation in Ohio, the sportsbook operators have generated $507 million in revenue after all bets were paid, which meant $50.7 million in revenue for the state. Had the new tax been in place, that figure would be just north of $101 million.
Operators argued the lower 10% tax was a trade-off for the higher licensing fees they paid Ohio, which were in the $3 to $10 million range. The higher tax going forward could impact the amount of money the sportsbooks offer customers in their promotions; it could also impact the number of them doing business in the state, a number that currently stands at 18 on the mobile side.
"What you could see is some of these smaller operators saying, 'Hey look, we got into the state at 10%, paying a 20% tax rate just may not be worth our while.' You may not see them renew their licenses; you may not see them pay those fees," Linnehan said. "I certainly think that it's not out of the realm of possibility that some of the smaller operators just say it's not worth it and leave Ohio."
A tax rate too high, the American Gaming Association argued earlier this year, may provide oxygen to the illegal sports betting market.
"What we have to be careful of is making sure that we're not putting legal operators who are playing by the rules at a significant competitive disadvantage to those who have been operating illegally in the state for a long time," said American Gaming Association Senior V.P. Casey Clark.
Ohio raised eyebrows in January when it saw in its first month of operations more than $1.1 billion in sports bets placed. By May, wagers were down 60% from that to $446.2 million. A reflection more of the time of year, Linnehan said, than the health of the industry.
"There's such a lull in the sports betting scene in the summer," he said. "Right now, I mean, the only really major game in town is Major League Baseball. MLB has never been a gigantic market; it's a nice market to bet on, but let's not kid ourselves here — football is king."
