How Sustainable Are Ohio’s Hefty Sports Betting Numbers?

Question now is how the gaudy handle, revenue numbers hold up going forward
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The numbers connected to Ohioans’ first month of sports betting were mind-boggling, and you could take your pick of which best fit that description.

The $208.9 million in gross revenue collected by sportsbooks in January was more than in any other state in any month ever.

The $1.11 billion in total bets taken was the second most in any state’s first month of mobile sports wagering opportunities, exceeded only by New York in January 2022.

The sportsbooks’ 18.8% hold rate — the percentage they retain after paying out to winning bettors — was more than twice as high as what is common in the industry.

And perhaps most notably for state officials, the $20.9 million in tax revenue generated by Ohio’s 10% tax rate is already triple what legislative researchers predicted would be obtained in sports betting tax revenue from January-June 2023.

Everyone knew Ohio would be a major sports betting state — with its sizable population and residents’ deep loyalty to numerous pro and college teams — but the extent to which they embraced the activity when given the first chance to do so legally was stunning.

“This far exceeded probably the expectations of most people and probably most analysts in the industry,” Wade Howk, chief financial officer of Hard Rock Casino Cincinnati, said in an in-house interview distributed to media Wednesday.

“Absolutely, Ohio we expected to be a large market and probably a number two or number three [betting state] in the United States, so we did expect there would be traffic,” Howk noted, “but $1.1 billion is a pretty big number for us.”

What about future months?

The question after such an impressive start becomes just how sustainable it is in the future. There are a number of reasons why it could be a long time before Ohio produces another month with a $1.1 billion betting handle and $208.9 million in gross revenue — assuming one ever occurs.

  • Sportsbooks across the country typically see a sharp drop in betting volume between January and February, due to the shorter calendar and the end of the popular-for-betting football season, with the exception of the Super Bowl. Large sports betting states comparable to Ohio saw a drop of 20-to-26% in their volume of betting between the first two months of the year in 2022.
  • Upon launch in any state, there is a boost in betting due to both the attraction of being able to do it legally for the first time and the abundant welcome bonuses dangled to first-time bettors by the operators. Promotional credits by the 16 mobile operators in January added up to $320 million, a number that won’t be repeated.
  • The operators’ 18.8% hold rate that inflated their revenue far beyond what any state had seen before is simply not sustainable. A rate of 7% to 10% has been common in monthly reports by other states. There was something about how Ohioans were betting in January that produced unusual loss levels for customers. OH Bets reached out to the three top operators — FanDuel, DraftKings, and BetMGM — seeking any helpful explanation, but none responded.

Even with such caveats, it’s certain that Ohio will be among top sports betting states. It is one of only five to have shown it can generate more than a billion dollars in wagers in a month, joining New York, New Jersey, Nevada, and Illinois. Not even Pennsylvania, a bigger state with its own rabid support for many pro and college teams, has reached that threshold since the industry seriously took off there in 2019.

“Just in its first month of operation, Ohio is probably comfortably one of the top four sports betting markets in the country,” David Forman, the American Gaming Association’s vice president of research, told the Dayton Daily News this week. “There’s no doubt you’ll see a bigger month than [January] in the future.”

Question about tax rate increase

Whether or not Forman’s prediction comes true, this is all clearly much bigger in potential impact on the state than was forecast by the nonpartisan Legislative Service Commission at the time the law was enacted in December 2021.

The commission’s fiscal note attached to House Bill 29 estimated $74 million in gross revenue and about $7 million in tax revenue in this fiscal year, which runs through June 30. It forecast that the first full fiscal year of sports betting in 2023-24 would produce $243 million in potential gross revenue and $24 million in tax revenue.

To say that those estimates now appear conservative would be grossly underselling the industry’s newly realized potential, considering the first month’s tax revenue matches nearly all of what was forecast for the first full year.

The tax revenue is directed to the new Sports Gaming Profits Education Fund, which generally is to support education programs, including an emphasis on sports and extracurricular activities.

What remains to be seen is what impact the unexpectedly high revenue at the outset will have on Gov. Mike DeWine’s quick proposal to double the state’s sports betting tax rate from 10% to 20%. He has made no public comment about the financial report since its release by the Ohio Casino Control Commission Tuesday.

When asked for comment on whether the initial numbers would have any impact on the proposal, DeWine’s press secretary, Dan Tierney, responded by email: “The tax rate proposal is unrelated to revenue generation concerns. It is related to compliance with laws, rules, and regulations in the marketplace.” The governor has been critical of certain advertising and marketing activities by companies related to their launch, some of which resulted in hefty fines issued by the commission.

No legislative leader has yet come out publicly for or against that tax hike proposal. Considering the industry has already begun generating far greater revenue both for operators and the state than anyone anticipated, it’s possible that that success would quiet any general support for a tax hike — assuming there was any in the legislature to begin with.

Photo: Alex Slitz/Getty Images

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