How Higher Taxes on Sports Betting Could Help Ohio Mitigate Gambling Harms

In Ohio, a group of prominent economists argues that implementing increased taxes on casinos and specifically on the booming sports betting market may be an effective strategy to mitigate the harmful effects associated with problem gambling. Their insights come as part of a broader conversation about managing the societal impacts of so-called “sin industries” and the rapid expansion of sports betting across the state.

Governor’s Proposal and Economic Insights

Governor Mike DeWine has proposed an initiative to double the existing state tax on sports betting. Economists, however, raise pertinent questions about whether higher taxes might inadvertently make illegal gambling operations more appealing to consumers seeking alternative options.

According to a report from Scioto Analysis, an Ohio-based market research organization, a considerable majority of the 17 economists surveyed (15 out of 17) agree that raising state taxes on gambling revenues could significantly lessen the negative societal impacts typically associated with casinos and sports betting. Furthermore, these experts indicated a similar effect could be seen concerning tobacco and cannabis use.

Understanding Gambling Addiction

As March is recognized as Problem Gambling Awareness Month, experts like Kevin Egan, an economics professor at the University of Toledo, emphasize that elevating the costs associated with gambling may help prevent addiction. According to Egan, soaring entry costs could reduce the likelihood of individuals becoming captivated by these industries, which many perceive as holding morally ambiguous practices.

“It is crucial to impose higher taxes on cannabis, gambling, and tobacco to ensure that consumers remain recreational users, as most intend at the outset. Nonetheless, a percentage of these users may transition into addiction and regret their choices. Higher taxes can play a role in reducing these addiction challenges in the future,” Egan explains.

The Impact of Increased Taxes on Gaming

Should casino and sportsbook operators face increased taxation, it is expected that this would create fewer incentives for customers. Casino operators may reduce offers such as free slot play and betting promotions to compensate for increased operational costs.

At present, Ohio ranks among the top 10 richest gaming states in the United States, with operators generating approximately $3.29 billion in gross gaming revenue for 2024. This revenue is broken down as follows: over $1 billion from the state’s four commercial casinos, $1.4 billion from the seven racinos, and about $900 million derived from both online and in-person sports betting.

Ohio’s Current Gambling Tax Structure

The state of Ohio has set relatively high taxes on gambling revenue. Casinos are obligated to send 33% of their slot and table game revenues to the state. Racinos are subject to a slightly higher tax rate of 33.5%. Comparatively, Ohio’s casino tax is elevated when contrasted with major gaming markets such as Illinois, Michigan, Mississippi, Nevada, and New Jersey. However, the state’s rates remain lower when stacked against Pennsylvania and New York, where taxation can take around half of net slot revenue.

As for online and retail sportsbook operations, they encounter a 20% tax rate, making it the sixth highest among the 39 states, along with Washington, D.C., that permit sports gambling. Nevertheless, Governor DeWine plans to propose a doubling of the state’s sports betting tax with the intention of funding professional sports stadiums.

Concerns About Tax Rates and Illegal Gambling

While many economists believe that higher taxes might reduce the attraction to gambling, potential drawbacks are emerging. Some fear that excessively high tax rates could drive consumers toward illegal gambling venues that may present worse societal consequences.

Christian Imboden, an economics professor at Bowling Green State University, stated, “If tax rates become prohibitively high, individuals may turn to underground markets that are less regulated, potentially resulting in greater societal harm.” Jonathan Andreas, an economist from Bluffton University, added, “If taxes are excessively high, we may see a shift towards illegal organized crime that can lead to more serious repercussions than a legal, regulated industry.”

Legislative Hurdles for Online Gambling in Ohio

The push for online gaming in Ohio has faced considerable resistance. Recently, lawmakers reviewed a bill aimed at legalizing online casino gambling. Sponsored by State Sen. Niraj Antani, this initiative has not gained momentum within the Senate Finance Committee.

A study conducted by the Study Commission on the Future of Gaming in Ohio revealed that the state could generate more than $500 million annually from online gaming. However, experts urged that any expansion of gambling should be approached cautiously and thoughtfully, avoiding a rushed process.

Conclusion

In conclusion, many economists believe that by implementing higher tax rates on gambling operations, Ohio could effectively mitigate some of the harms associated with gambling. While current tax structures provide substantial revenue, the possibility of driving consumers towards illegal options highlights the importance of balancing tax levels with accessibility. Moving forward, Ohio’s approach to legalized gaming will require careful deliberation to ensure a responsible and sustainable gambling environment for all.