Ohio State made it to the Peach Bowl, setting up a showdown against Georgia on Dec. 31. The national semifinal will be one of the largest college football games this season. However, Ohio sports betting doesn’t launch until Jan. 1, the day after it could’ve captured Peach Bowl revenue.
It seems like a lost opportunity for Ohio sportsbooks.
In the 2021 Orange Bowl, Michigan squared off against Georgia. Betting patterns in Michigan reflected the enthusiasm of Wolverines fans, who watched their team lose to the Bulldogs in the College Football Playoff semifinal and fail to advance to the National Championship game.
According to data emailed to Gaming Today, PointsBet saw a 58% increase in betting handle from the Orange Bowl to the CFP National Championship game. In Michigan, PointsBet saw only a 1.5% increase in handle from the Orange Bowl to the title game.
PointsBet also found that Michigan accounted for roughly 14% of global handle for the Orange Bowl, but only 9% of handle for the National Championship game. PointsBet “would have expected it to be in the 15%-20% range if Michigan had beaten UGA,” PointsBet Senior Communications Director, Patrick Eichner, wrote to Gaming Today.
After Georgia’s win, many Michigan bettors lost interest in betting on the championship game. With Ohio State in the Peach Bowl, Ohio sportsbooks will miss out on a lucrative sports betting event and an early customer acquisition opportunity.
Revenue out of the gate, though, isn’t the only thing that’s important to a competitive sports betting industry. There’s a strong case to be made for sticking to the plan of launching on Jan. 1, one day after Ohio State’s Peach Bowl appearance.
The Case Against an Earlier Sports Betting Launch Day
While HB 29 set Jan. 1, 2023, as the latest possible start date for Ohio sports betting, the OCCC’s Executive Director was allowed to set an earlier date. In a statement emailed to Gaming Today, the OCCC defended this decision:
“HB 29 required all types of sports gaming – online/mobile, in-person retail, and kiosk wagering – to start at the same time. Given the preparations needed, Jan.1 was selected as the universal start date. While the Commission received inquiries regarding a change to the launch of sports gaming, in order to keep the start date universal for those looking to launch as required by law, sports gaming in Ohio will begin on Jan. 1, 2023.”
The inquiries refer to DraftKings’ letter asking the OCCC to consider a staggered launch instead of a universal launch. A staggered launch would’ve given whichever sportsbook launched first an advantage. Sportsbook customers typically don’t sign up for many sportsbooks, so the first one or two to attract customers tend to lead in market share.
Technical Challenges of Sportsbook Launches
Early launches can go wrong. Online sportsbooks undergo stress tests to ensure they function properly when they go live. But those procedures haven’t eliminated technical glitches in other states. In the first two weeks of its launch in New York, the Caesars Sportsbook app suffered outages. This led to delayed withdrawals and long waits on customer service lines. Its statement to ESPN acknowledged that New York’s “unprecedented scale…exposed flaws” in the Caesars platform.
“Even a casino, which is a much smaller environment, you open that up slowly,” gaming industry luminary Richard Schuetz told Gaming Today.
“To throw [sportsbooks] open on one of the busiest betting days of the year, that’s like saying, ‘I want to be a race driver, and I’m going to start with the Indy 500,” said Schuetz, whose decades-long career has included stints as a casino executive, regulator, and consultant.
Stress testing for a gaming license is not the same as stress testing during a major sporting event. While Ohio sportsbooks will miss out on revenue from the Peach Bowl, the risk of pushing sportsbooks past the volumes they built themselves to handle in Ohio will be minimized. Ohio won’t match the size of New York’s market, but the intensity of an event like a college football semifinal featuring a new market’s team is a unique stress test potentially unsuitable for a sports betting launch.
Ohio sportsbooks can still advertise pre-launch bonuses during the Peach Bowl, which will put Ohio’s books in front of an army of rabid college football fans. Ohio sportsbooks will also be live during the final weeks and playoffs of the NFL season, the Super Bowl, and March Madness — and for the CFP National Championship, which, with some luck, will feature Ohio State.
So, Ohio’s new sportsbooks will be able to prepare for major events instead of stress testing during them.
Besides, Ohio has set itself up to capture a healthy amount of tax revenue from sports betting.
Ohio State Tax Advantage
Ohio will tax sportsbooks at 10%, among the lowest sports betting tax rates in the United States. (New York and Rhode Island tax sportsbooks at 51%.) But Ohio will not allow sportsbooks to write promotional credits off their taxes until 2027.
“Promotional sports gaming credits are NOT deductible when sports gaming launches Jan. 1 ,” the OCCC said in an email. “Beginning Jan. 1, 2027, 10 percent of promotional sports gaming credits can be deducted, and 20 percent can be deducted beginning Jan. 1, 2032”
In other states, promotional credits significantly reduce state tax revenue from sports betting. The Super Bowl is a major event that sportsbooks use to acquire customers, often leveraging promotional credits to attract new customers.
In Feb. 2022, Michigan online sportsbooks saw $22.5 million after winnings were paid out. After subtracting promo credits, Michigan’s online sportsbooks realized a loss of just under $4 million. Michigan sportsbooks paid just over $360,000 in state taxes, compared to $1.4 million the month before and about $805,000 the month after. Promotional credit write-offs are great for sportsbooks but unprofitable for states.
Ohio’s approach is a compromise that will allow the state to generate more money from sports betting up front. By the time the sports betting market matures, sportsbooks will be able to write small amounts of promotional credits off. Ohio will gain the same benefits of increased tax revenue while ensuring that sportsbooks’ long-term investments in Ohio remain feasible.
Missed Early Revenue But Bright Future
Ohio sportsbooks may not get to take full advantage of Ohio State’s presence in the Peach Bowl. But those sportsbooks will be more likely to function properly if their first days aren’t overwhelmed with Buckeyes bettors. Additionally, Ohio will make up its lost tax revenue from a full month of NFL betting and the Super Bowl that lets Ohio profit from bets placed with both customer funds and promotional credits.
Ohio will also maximize state tax revenue by eliminating tax write-offs from promotional credits. Even though Ohio’s tax rate is low, profiting from bets placed with promotional credits will increase its tax revenue and could make it competitive with markets with 15-20% tax rates.
Delaying the months that sportsbooks can write promotional credits off will boost Ohio sports betting tax revenue up front, creating favorable headlines early on. Despite missing a major sporting event, Ohio sportsbooks are set up for a promising future.