“The restrictions placed on kiosks make it difficult for bars and restaurants to maximize revenue from sports betting,” Grove said. “It’s not impossible, or even implausible, that kiosks will generate the revenue necessary for the Lottery to show a profit, but it won’t be an easy hill to climb.”
CLEVELAND, Ohio — Sports betting has generated millions of dollars in revenue, but the Ohio Lottery’s piece of the pie is so small that it’s been a losing proposition for both the Lottery and state coffers in what’s still a young industry.
That’s because the Lottery’s sports-betting kiosks found in bars, restaurants and grocery stores bring in only a sliver of the money wagered each month, far exceeded by both mobile-betting apps and casino-style sportsbooks that don’t come under the Lottery’s umbrella.
Since sports gambling became legal in Ohio on Jan. 1, the Lottery’s share of the kiosks’ revenue has not been enough to cover its costs. These kiosks also don’t generate many tax dollars for the state each month.
Just over $3.2 million in bets were placed at the kiosks through March, netting $350,000 in revenue, according to monthly reports from the Lottery. This money is split between the Lottery and the vendors that run these machines.
The Ohio Lottery’s share was $28,376 in January, $13,814 in February and $33,283 in March — for a total of $75,473 this year. But it costs the Lottery at least $54,200 a month to operate and regulate these kiosks.
The Lottery pays $650,000 on staffing each year to help regulate sports gambling, which is its only significant expense, Ohio Lottery Commission spokesperson Danielle Frizzi-Babb said.
Frizzi-Babb said the Lottery also had $335,000 of startup costs, which included staffing and about $50,000 on software updates.
While other forms of gambling, like the slot machines in racinos and lottery tickets, are profitable for the Ohio Lottery, the Commission knew going in that sports betting would only generate a “minimal” amount of money, Frizzi-Babb said.
“While we were tasked by the legislature with starting the lottery sports gaming program, we knew that it was not going to be as lucrative as traditional lottery products,” Frizzi-Babb said in an email.
“Unlike traditional lottery games that have fixed payouts and prize structures, sports gaming’s odds are volatile and change quickly, and sometimes proprietors take a loss.”
She also said that the betting kiosks are competing against mobile sports-betting apps.
Of the $1.75 billion bet on sports in January and February, 97.5% was on mobile apps and 2.3% was bet at in-person betting lounges. Just $1.8 million, about one-tenth of one percent, was bet on the Lottery’s kiosks.
The kiosks were available at 940 locations in March and should be available at 1,100 business by the end of the year, Frizzi-Babb said.
Separate from what the lottery receives, taxes on sports betting go directly to the state and don’t help the Lottery cover its expenses. But even if you add in tax dollars, the kiosks aren’t breaking even.
At a 10% tax rate, Ohio has received $34,981 in three months to go along with the $75,473 the lottery collected - a total of $110,454. This is well short of the $162,500 in staffing costs the lottery spent at the same time to administer sport gambling.
The state — not the Lottery — also collected $700,000 in one-time startup fees from sports gambling companies that work with the Lottery.
The state’s Casino Control Commission also collects fees, but it uses them to fund its regulation of sports gambling in Ohio. This was not included in the analysis. None of that money goes to the Lottery.
House Bill 29, passed by the legislature and signed by Gov. Mike DeWine, created three kinds of sports gambling — mobile-betting apps, casino-style betting lounges called sportsbooks and betting kiosks that can be found in bars.
While betting apps and in-person sportsbooks fell under the Ohio Casino Control Commission, regulating and running the kiosks is mostly under the purview of the Lottery Commission.
The Lottery is required to contract with vendors to run the machines. The gambling revenue, which is the money left over after all the bets are paid out, is split between the vendors and the Lottery.
On stand-alone machines that only offer sports betting, the Lottery gets 10%. On machines that the Lottery owns, it gets 32.5%. The Lottery ends up with 19% to 25% of all revenue each month.
Sports betting is just a small part of the Lottery’s business. Last year it announced $1.4 billion in profit, which was given to the Lottery Profits Education Fund.
Frizzi-Babb said traditional lottery sales and Racino revenue remains strong, and the Lottery is on pace to set another record for profits this year.
Eilers & Krejcik Gaming, a leading research firm in the gambling industry, predicts that at maturity Ohio’s sports betting industry will bring in about taxable $845 million in revenue each year — but hitting that mark could be years away. About $744 million would be from betting apps, and the other $111 million would be from casino-style sportsbooks and bars’ betting kiosks.
Chris Grove, Partner Emeritus for Eilers & Krejcik Gaming, said the kiosks’ share of that $111 million would be relatively small. This is, in part, because players can only bet $700 each week, a restriction other forms of sports gambling don’t have.
“The restrictions placed on kiosks make it difficult for bars and restaurants to maximize revenue from sports betting,” Grove said. “It’s not impossible, or even implausible, that kiosks will generate the revenue necessary for the Lottery to show a profit, but it won’t be an easy hill to climb.”
Revenue from the other two kinds of sports betting, mobile apps and sportsbooks, have netted the state about $29 million in taxes.
Most of Ohio’s sports gambling, and all of the licensing, is handled by the Casino Control Commission. Instead of getting a share of the revenue, the Casino Commission pays its operating expenses through fees. The fees have been high enough to cover its bills.
Casino Commission spokesperson Jessica Franks said application fees generally go to the Casino Commission and licensing fees go to the sports gaming revenue fund — the same fund where taxes on sports betting is deposited.
As an example, here’s how it works for a sports-betting app license like the one the Cleveland Browns received. The applicant pays a $150,000 initial application fee and a $1 million license fee. The company that runs the app also has to pay a $150,000 application fee and a $2 million in licensing fee. That adds up to $3.3 million.
The Casino Commission keeps the two $150,000 application fees, but the rest goes to the sports gaming revenue fund.
The Casino Commission estimated that regulating sports gambling would cost about $9 million over five years. Franks said application fees were set with this in mind, and the Commission ended up collecting $9.4 million in fees. Most licenses have to be renewed every five years.
Because of how sports betting is set up in Ohio, the Lottery doesn’t keep any of the revenue from licensing the seven sports-gambling vendors it’s currently working with.
These vendors pay $100,000 license fees to the state for their first five years, and $25,000 fees if they renew for another five years. If you spread the $700,000 in fees the state collected over five years, it’s $11,700 a month — not enough to cover what the Lottery lost so far.
For the state’s 11 casinos and racinos, the funding model is very different.
About one-third of all Casino revenue goes to the state in the form of taxes, and it’s distributed to a variety of places. The Casino Commission gets 3% of those taxes to help pay for operating expenses, along with application and license fees.
None of the taxes on sports gambling, however, go to the Casino Commission.
The Lottery Commission runs the slot machines at the state’s seven racinos, and in a similar fashion to sports betting, it contracts with vendors to run the machines. The Lottery gets one-third of the revenue each month.
In the Lottery’s last fiscal year, July to June, the racinos brought in $1.33 billion of revenue, and the Lottery kept $446 million.
https://www.cleveland.com/news/2023/04/sports-betting-is-a-loser-for-the-ohio-lottery-so-far.html