Legalization of Sports Betting in Ohio
On January 1, 2023, sports betting became legal in the state of Ohio for those 21 years or older and physically present within the state. HB 29 allows for wagering on any professional sport, college sport, Olympic event, motor race, or horse race event. Esports has also been included so long as those participating are over the age of 18. Since the enactment of HB 29, there have been a few changes and a booming industry that has brought in over $85 million in taxes for the state of Ohio.
Types of Sports Betting Licenses
As a refresher, HB 29 provided for three sports betting license types: Type A, Type B, and Type C. At a high level, Type A licenses are designated for mobile platforms, Type B licenses are for brick-and-mortar retail locations, and Type C licenses allow for sports betting kiosks at Class D liquor license holders (i.e. restaurants, bars, and some grocery stores).
There were 25 Type A licenses granted for mobile sports betting applications, but there are currently only 19 sports betting apps available in Ohio. For example, the Cleveland Cavaliers have a Type A license but their original partner, Fubo Gaming, has shut down its business since originally agreeing to partner with the Cavs. The catch 22 for this license is that a business or person is only eligible for a Type A licenses if they also hold a Type B license or maintain a business operation with multiple employees located within the state. This has effectively led to mobile sports betting applications teaming up with professional sports teams or current gaming casinos to provide mobile gaming. The most active sites have been DraftKings, licensed by Hollywood Toledo; FanDuel, licensed by Belterra Park; BetMGM, licensed by MGM Northfield Park; and, bet365, licensed by the Cleveland Guardians. DraftKings and FanDuel have held a firm grip on this space at 68.4% of online gaming.
HB 29 provided for 40 Type B licenses granted to brick-and-mortar retail sportsbooks. These licenses are distributed throughout the state based on county population and tourism traffic. This heavily weighs in favor of professional sports teams, casinos and, horse tracks located in the state. The current limit leaves no effective room for additional entrepreneurs in the space.
The Type C licenses pertain to betting terminals, i.e., kiosks, that are operated via contract with the Ohio Lottery Commission, which regulates instant-win lottery and Keno terminals across the state. Up to 20 Type C proprietor licenses will be granted to terminal operators, who arrange to have equipment placed in approved restaurants, bars and the like that possess Class D liquor permits — host sites — where patrons can place wagers. Hundreds of businesses throughout the state now have the requisite equipment to place bets at these betting terminals. However, only four proprietors are licensed and active: BetSkyBox, BetIGG, UBet Ohio, and Sports Bet Ohio. Three other proprietors have been granted licenses but are not currently active in Ohio.
While there is no limit on number of host site licenses, there are restrictions on the number of terminals, the types of betting and the daily amount wagered by a guest. If a location is limited to two terminals, it could arguably impact that location’s ability to generate maximum sports wagering revenue.
Taxation and Opportunities
The tax on sports gaming originally was 10% on a sports gaming proprietor’s net revenue, which is very favorable for the operators and separates Ohio from other states that have legalized sports betting. However, Ohio lawmakers passed legislation to increase the tax to 20% which became effective July 1, 2023. The majority of taxes collected help fund K-12 schooling with a small percentage used for a state-sponsored problem sports gaming fund.
The legalization of sports betting in Ohio provides entrepreneurs the opportunity to attract sports fans to their business by providing a sportsbook or a kiosk to place bets. A barrier of entry to entering the space is cost. Proprietors can initially expect to spend anywhere from $50,000 to $5 million on a licensing fee depending on the type of license in addition to application fees. This makes it especially difficult for smaller businesses that may have interest in establishing a brick-and-mortar sportsbook. A recent example of businesses coming together to provide a brick-and-mortar sportsbook is the teaming up of the Cleveland Browns, Bally Bet, and Harry Buffalo to create a new Bally Bet Sportsbook. Overall, Ohio could generate $10 billion in bets in 2023, which makes the risk of entering the sports betting arena especially attractive.
Furthermore, additional opportunities may become available in 2024 as 15 different licensed entities have not gone forth with their plans to offer sports betting in Ohio. The entities were recently granted additional time until June 30, 2024, but could have their licenses revoked if they do not begin business in 2024.
Larger businesses located in a county with a number of professional sports teams and casinos – or small to medium sized businesses that do not have the capital for a Type B license – can look to become a Type C Host. Despite laying out a maximum of 20 Type C proprietors, HB 29 does not lay out a maximum number of hosts for a Type C license. Type C host licenses cost $1,000 excluding application fees. While the Ohio Casino Control Commission has the ultimate say, the Ohio Lottery Commission can make recommendations for potential sports gaming kiosks to the Ohio Casino Control Commission. Once licensed by the Ohio Casino Control Commission, Hosts can enter into an agreement with a Type C proprietor to offer a maximum of two kiosks at their location.
The big winner is the Ohio sports bettor with numerous options for retail sportsbooks and online betting apps available. This competition will continue to create large numbers of promotions and options for Ohio sports bettors’ dollars. If you have questions about how your business can get involved in Ohio’s lucrative sports gaming market, contact KJK Esports, Media & Entertainment attorneys, Scott Norcross (SAN@kjk.com; 216.736.7264) or TJ Hunt (TJH@kjk.com; 216.736.7245).