Ohio Legalizes Sports Betting, But Is The Tax Structure a Killer?

Ohio Governor Mike DeWine (l.) last week signed a bill legalizing sports betting in the state. But taxes may prove a sticking point. The law calls for the gaming tax to be paid daily, which creates problems with futures bets and more. The state also could need a year to work out the kinks.

Ohio Legalizes Sports Betting, But Is The Tax Structure a Killer?

With a stroke of the pen, on December 22 Ohio Governor Mike DeWine signed a bill to legalize sports betting in the state.

Ohio lawmakers approved legislation earlier in December that will allow people to wager online, at casinos, racinos and at stand-alone betting kiosks in bars, restaurants, and professional sports facilities. Ohioans can bet on pro teams, racing, Olympic events, golf and tennis, and major college sports, according to the Associated Press.

For sports fans, all’s right with the world in Ohio. Well, hold your horses. Seems all’s not right. The new law requires sports betting be available by New Year’s Day—of 2023.

More than a year away.

Why so long?

Before a single license application can be accepted, the Ohio Casino Control Commission must formulate rules and regulations—a process that could take months. Some rules are already in place. For example, operators will pay a 10 percent tax on net—not gross—revenue to the state to help fund K-12 education and problem gambling programs.

But it isn’t the tax rate that has raised eyebrows in Ohio. It’s how the tax is to be paid by sportsbooks. Daily, or to be more accurate, on days when banks are open. With no negative carryovers.

Monthly payments are the norm in the business. Even when the state approves writing off promotional costs, it won’t help on days when the income is negative because there is nothing to deduct from.

As a result, operators could end up paying five times the actual tax rate, according to Sports Handle.

This can become a sticking point during a pro golf tournament in which winnings would be paid Sunday, but futures bets are accepted until the previous Wednesday. Football weekends, same thing. MLB, NBA, NHL playoff series too, depending on when games are paid and when series are completed.

If changes to the system don’t happen, operators will work with it, even if it hurts consumers. For example, sportsbooks may refuse to accept futures bets until the day of an event, so bettors won’t be able to take advantage of changing odds.

Taxes aside, stakeholders hope to accept bets prior to 2023.

“We’re thrilled to have it done, it was a pretty long, arduous process,” said MGM Senior VP for Public Affairs Ayesha Molino. “In terms of 2023, we will remain ever optimistic that that timeline will move up, and we will work with the regulators to see if we can speed the process along.”

Since the legislation calls for formation of an advisory committee like Maryland, accepting the first bets are not likely to happen until April.

It’s highly unlikely that wagering will go live on or near April 1, 2022, in large part because the bill also calls for formation of an advisory committee that will be part of the regulatory process. In Maryland and Tennessee, both of which also have advisory committees, it took several months just to appoint the committee members, and then at least a few weeks for the members to become familiar with the laws and the landscape.

Ohio lawmakers made room for pro sports venues to offer sports betting. And while the bill requires that digital platforms be tethered to existing businesses in Ohio, there appear to be a total of 21 existing casinos and pro sports franchises or venues.

That leaves four digital licenses that could be connected to companies with a presence in the state but maybe not a gaming presence. So, could this mean that a supermarket chain like Kroger, which is headquartered in Ohio, could open a sportsbook? Stakeholders aren’t quite sure.

Here’s a breakdown of license categories:

  • Lottery vendors will be allowed to have kiosks
  • 25 Type A licenses, which allow for digital wagering and can be obtained by companies with a physical location in Ohio. Sports organizations will pay a $500,000 application fee and $250,000 renewal fee, while non-sports organizations will pay a $1 million application fee and a $500,000 renewal fee
  • 40 Type B licenses, which are retail licenses, will be available to companies in Ohio. A set number of licenses per county based on population will be allowed
  • Type C licenses, which will be available to lottery partners, are strictly for small businesses wanting kiosks

Suffice it to say, sports fans will have to wait to celebrate, and likely will miss yet another Super Bowl.

“We want to get this up and running as soon as possible, but we’re building a whole new industry,” Said Senator Kirk Schuring of Canton. “We’re hoping it can be done sooner (than 2023).”