Recent Update

1. Executive Summary

This regulatory report provides an in-depth analysis of the origins of the Ohio gaming market, the applicable regulatory and legislative framework that underpins each gaming sector as well as analysis on the applicable licensing standards, and statistical data on market performance.

2. Historical Development of Gaming

In Ohio, gambling has historically been perceived as immoral, a sentiment that is reflected in some of the state's earliest laws. In 1805, the state's General Assembly passed an Act criminalizing various forms of gambling. However, this was rarely enforced. Over the years, more progressive measures came into effect, providing for revenue generation by way of a lottery to fund public improvements. 

However, the General Assembly reigned in this practice by issuing a prohibition on lotteries in 1830. The measure prohibited any further use of lotteries or schemes of chance for any purpose, and was carried over into the state's amended constitution, which was adopted in 1851 and much of which remains in effect today. Section 6 of the Ohio constitution stated that, 'lotteries and the sale of lottery tickets for any purpose whatever shall forever be prohibited in this State.' 

The prohibition remained in effect for much of the early 20th century, but as the crippling effects of the depression began to take hold, gambling was viewed as an avenue to revive the economy through new employment opportunities and tax revenues. By 1933, the state legislature enacted laws governing horse racing, and shortly thereafter, the state's first tracks were unveiled, paving the way for what would become one of Ohio's most favored pastimes. 

By the early 1970s, Ohio Senator Ron Mottl launched a campaign to expand Ohio's gambling market by establishing Ohio's state lottery. By 1973, voters firmly agreed by offering their approval with more than a 2-1 margin and by early 1974, the first lottery tickets were sold.  

By 1983, the state's legislature began earmarking lottery profits for education and by 1987, Ohio residents voted to amend the constitution yet again to require that lottery proceeds are permanently earmarked for education. This amendment led to the creation of the Lottery Public Education Fund, which provides for a clear separation of lottery revenue from the state's general revenue fund.

Amid the early days of the state's lottery and in an effort to curtail any further gambling expansion, the General Assembly enacted chapter 2915 of the Revised Code. The code was intended to prohibit the business of gambling for profit but not for pleasure. 

Under chapter 2915, all forms of gambling and activities in aid of it are illegal if they are carried on as a business or for personal profit.

While the law remains in effect, it has been chipped away by the subsequent passage of laws expanding the lottery and legalizing casino gambling. The law states that unless permitted by other laws, Ohio law prohibits the following:

• Engaging in or facilitating bookmaking, defined as the business of receiving or paying off debts.
• Establishing, promoting, or operating any game of chance conducted for profit.
• Establishing, promoting, or operating any scheme of chance - slot machines are included within the definition of 'scheme of chance'. 
• Engaging in betting or playing any scheme or game of chance as a substantial source of income or livelihood.  
• Acquiring, possessing, controlling or operating any gambling device for purposes of facilitating the above mentioned activities.  

Amendments to House Bill 1, discussed further in the body of this report, specifically exclude the application of chapter 2915 of the Revised Code to the amendments.

As in the 1930s, monetary woes again resulted in Ohio legislators repealing prohibitions on gaming in an attempt to garner more tax revenue and increase job opportunities. In December 2009, voters passed a referendum legalizing casino gambling. On June 10, 2010, Governor Ted Strickland signed House Bill 519, creating a regulatory scheme for Ohio's casinos.

On July 17, 2010, Governor John Kasich singed House Bill 277 which allows for the state's seven racetracks to operate video lottery terminals.

3. The Gaming Market Today

3.1 Roll-out of Casino Gaming

Ohio's gaming market is currently dominated by the state lottery, pari-mutuel wagering on horse racing and the largest charitable bingo market of any state. However, feeling the effects of the economic downturn in 2007, with budget shortfalls and high unemployment rates, Ohio sought to expand gaming as a method of increasing tax revenues and job creation.

The prospect of state gaming revenues was solidified in the mind of the Ohio Legislature when a 2008 study conducted by the Innovation Group, prepared on behalf of the Ohio Legacy Fund, showed that Ohioans contributed $1.276bn to gambling markets in Pennsylvania, Michigan, Canada, Indiana, West Virginia and New York.

With the legislature on board, the prospect of gambling expansion was put before Ohio's voters, as required by state law. In a November 2009 referendum, Ohio voters offered their approval for casino-style gaming, by a margin of 53 percent to 47 percent. The approval of the casino referendum was likely motivated by the state's economic woes and unemployment rates hovering around 10 percent, as a similar referendum had failed on four previous occasions. The approved measure called for a constitutional amendment that would require legislators to establish the regulatory framework necessary for the introduction of Las Vegas-style casinos in Ohio's four largest cities: Cleveland, Columbus, Cincinnati and Toledo. Voters later agreed to move the Columbus location to an area in Franklin County on the outskirts of the city, after disputes with Columbus area businesses arose in relation to the casino's proposed location.

On June 10, 2010 Ohio Governor Ted Strickland signed House Bill 519, which established the regulatory parameters for Ohio's four anticipated casinos. An accompanying bill (Senate Bill 181) appropriated casino licensure fees for workforce training, as well as a state sponsored co-op internship program. The law requires casinos to pay a one-time licensing fee of $50m and a 33 percent tax on their gross revenues.

The law went into effect in September 2010 and is outlined in section 4 below.

Since the passage of the Ohio Casino law, two developers have begun work on the four potential venues. Penn National Gaming, which currently operates multiple gaming venues across the country, will be operating the Columbus and Toledo locations. Rock Ohio Caesars, a joint venture between Ohio-based Rock Gaming and Las Vegas casino giant Caesars Entertainment, will operate the Cleveland and Cincinnati venues.

3.1.1 The Casino Control Commission

On October 8, 2010 outgoing Governor Strickland made appointments to the state's new Casino Control Commission; however, Governor Kasich reversed those appointments and appointed his own picks on February 23, 2011. Under Ohio law, no more than four members of the committee can be from the same political party. Governor Kasich appointed four republicans, Sergeant McKinley E. Brown, Speaker Jo Ann Davidson (Chairman), The Honorable Martin R. Hoke and John S. Steinhauer and two democrats, June E. Taylor and Peter R. Silverman. One unaffiliated member, an accountant, also sits on the seven member panel.

Of note, while Chairman Davidson served as Speaker of the Ohio House she was strongly opposed to casino expansion.

The commission was originally mandated to introduce a series of regulations governing casino licensing and enforcement before the end of March 2011. However, the delayed selection of commission members as well as other factors has caused the commission to miss its statutory deadline, pushing back the date for issuing casino regulations. The first meeting of the commission convened on March 7, at which point Chairman Davidson stated that there would be a delay in crafting casino regulations while the state sorted out budgetary issues and sources for funding the commission through the 2011 fiscal year.

3.1.2 House Bill 277

Since Governor Kasich took office in January 2011, there has been much debate over the taxation of casinos, the implementation of video lottery terminals at the state's racetracks and casino regulation generally.

The taxation rate for Ohio's casinos is 33 percent. Nationally tax rates range from single digits to near 70 percent. In states that have recently approved casino gambling tax rates range between 22 and 67 percent. Furthermore, up-front licensing fees in many of the states that have recently rolled out casinos are lower than those imposed in Ohio. However, the firm establishment of fees and taxes by a constitutional amendment is more unique.

Between March and June Kasich flexed his muscle on the taxation issue, engaging in a drawn out battle with the casino industry. At the center of the debate was the state's commercial activity tax (CAT).

In addition to the 33 percent tax levied on casinos by the 2010 law, all Ohio businesses must pay a CAT of 0.26 percent. Ohio's CAT is similar to other states' gross receipts taxes that are levied against total revenues of the businesses. However, there is an exemption in Ohio's current corporate income tax scheme that allows racetracks and banks to pay CAT on their net receipts.

In March 2010 an Ohio Department of Taxation memorandumto the General Assembly, stated that casinos could be required to pay the CAT on total bets made.

"The CAT was designed to apply to a business' total gross receipts as a whole - not a net calculation of receipts after expenses…. As such, there is a strong argument that the CAT, as applied to casinos, should extend to a casino's gross wagers, including any amounts that are re-bet."

The tax debate was officially settled on July 15, 2011 when Governor Kasich signed House Bill 277 into law. The bill withdraws the states contention that the CAT should apply to total wagers and agrees to treat casino gaming receipts the same under the CAT as they are treated under the gross casino revenue tax. In addition, the bill makes multiple other amendments to the casino laws. The law will become effective October 17.

Further, as part of the agreement reached between Kasich and the casino industry, the state's two casino operators will make additional payments to the state above the 33 percent tax and the $50m licensure fee.

HB 277 became effective on October 17 and settled the CAT dispute. However, beyond the CAT issue the bill also makes multiple other amendments to Ohio's gaming paradigm. In summary the bill:

• Changes the ownership disclosure threshold that must be reported for licensure for casino operators, management companies or holding companies.
• Allows for the Casino Control Commission to assess reasonable administrative fees for casino-related license renewals and makes clear that a license must be renewed every three years.
• Expressly permits the casinos to open in phases.
• Prohibits the Commission from requiring the use of a central system by casino operators if the operator is in compliance with the casino law.
• Creates the Casino Operator Settlement Fund, which casinos will deposit some $220m in payments over a 10 year period.
• Gives casinos the ability to offer free slot play promotions without taxation.
• Establishes that a card for the purchase of gasoline is a redeemable voucher for a skill-based amusement machine.

Currently, HB 277 is being challenged in court by the American Policy Roundtable, under allegations that its enactment violates the state's constitution. Walgate v. Kasich, filed on October 21 in the Franklin County Court of Common Pleas, is pending. State officials do not believe the outcome of the case will have a significant effect on the rollout of Ohio's casinos.

More information on the new laws can be found in the casino legislative framework section.

The bill also authorized the operation of video lottery terminals at racetracks and allows racetrack permit holders who are eligible to become a video lottery sales agent to apply to the State Racing Commission to move its track to another location. This is discussed further in the following section.

3.2 VLTs at Ohio's Racetracks

On July 13, 2009 Governor Strickland issued a directive instructing the director of the Ohio Lottery to begin the implementation of video lottery terminals (VLTs) at Ohio's racetracks.  The directive did come with something of a caveat however. The Governor stated that the Commission's actions were subject to confirmation from the General Assembly that the Commission would be acting within their jurisdiction by operating VLTs.

On the same day that the Governor issued this directive, the General Assembly passed 2009 Am.Sub.H.B. No. 1 (House Bill 1, 'HB 1'), which included an amendment to chapter 3770 of the Revised Code. This amendment defined lottery as follows, "lottery. . .includes, and since the original enactment of this section has included, the authority for the commission to operate video lottery terminal games."

The reason why the General Assembly took this step is because 'lotteries' - which are operated by a state agency and which derive funds for state education - are legal. Therefore, the Assembly believed that the easiest way to cater for the implementation of VLTs in Ohio would be to simply re-affirm an authority, which they believed the lottery commission already had: the authority to offer VLTs. While the re-affirmation was designed to negate the possibility of judicial challenge, it may have actually invited it.

Under the directive, VLT revenues were to be taxed at 50 percent, on top of a $65m fee to be paid by each of the tracks, in return for a 10-year license to host the gaming machines.

Under state law, laws passed in Ohio "generally do not take effect until 90 days have passed from the date they are filed by the governor with the secretary of state, to allow for a possible referendum."

However, there are three constitutional exemptions to this. One of which is "appropriations for current expenses of the state government and state institutions." The legislature drafted the VLT provision as an 'appropriation.'

The legality of the VLT provisions of HB 1 created a firestorm of controversy in the state. As such, the case of State ex rel. LetOhioVote.org v. Brunner debated the issue of whether the VLT provisions did in fact fall into the exception claimed by the General Assembly. The court rejected this argument, and, except for the one dissenting judge, was unequivocal in its rebuttal.

Those defending the government's actions claimed that a decision allowing for a referendum was not required "because the Lottery Commission already possesses the authority to implement VLT gaming without the amendments enacted by HB 1."

The court "declined the invitation" to adjudicate on this assertion, claiming instead that it was not necessary to do so in relation to the issue that was being adjudicated which was the electorates' right to a referendum on the VLT provisions.

In delivering its judgment, the court stated that the applicants would be given 90 days from the date of the decision to raise the required signatures for a referendum (six percent of the voting electorate of Ohio), the stipulated deadline for the filing of these signatures was set as December 20, 2009, and the application of the VLT provisions were delayed until that date.

However, in July 2010 the referendum effort fell apart and the Lottery Commission paved the way for VLT construction at Ohio's racetracks, issuing a proposed VLT licensing scheme.

In July 2011, as part of a compromise deal with casinos over taxation issues and a review of the state's overall gaming policy, Governor Kasich signed a law that allows for the introduction of VLTs at Ohio's racetracks. The timeline below illustrates the chronological events that have taken place culminating with the July 2011 legalization.

3.3 Lottery Private Management and Online Ticket Sales

In 2010 a long-awaited audit into the performance of the Ohio Lottery recommended that the Ohio Lottery Commission become a quasi-public organization, or be eliminated entirely. The report was authored by State Auditor Mary Taylor. The report stated that,

"Unlike virtually every other state agency and commission, the purpose of the Ohio Lottery is not to provide a service, but to generate a profit. . . . This mission, to generate revenues which support education, is achieved through promoting a product in the marketplace and is more similar to a business enterprise than a government agency. However, OLC's status as a cabinet-level state agency hampers its ability to operate most effectively. [Becoming a quasi-public corporation would allow the Lottery to] react to changing markets and implement legislatively authorized online and instant games in a more timely fashion. . ."

The report notes that currently, most policy and planning decisions are made outside the Lottery's governing commission, limiting its functions to rule-writing authority for the operation of new games. While such a change in structure of the voter-approved lottery would require legislative approval, the report has caught some attention as Ms. Taylor ran with Governor Kasich and now serves as Lieutenant Governor.

Prior to the report, state Senator Kevin Coughlin, R-Cuyahoga Falls, introduced a bill calling for the privatization of the Ohio state lottery ( Senate Bill 224). However, the bill never made it out of committee and Senator Coughlin was term limited from running for re-election.

Lotteries cannot be fully privatized under federal law.

3.4 Internet Sweepstakes Cafes

In Ohio and elsewhere so-called 'Internet Sweepstakes Cafes' have begun to proliferate, allegedly exploiting loopholes in gambling laws. The cafes feature computer games that look and play much like slot machines found in casinos and players via for credits, prizes and in some cases cash.

Some states have undertaken either legislative or legal efforts to close these cafes. In Ohio both legislative and legal actions have occurred in relation to the cafes. According to reports, the City of Cleveland has successfully prosecuted two sweepstakes operators and has closed down four businesses. In the process, a Cleveland Municipal Court Judge determined the games being offered in sweepstakes cafes are gambling.

In April 2011, Ohio state Rep. Nan Baker (R-Westlake) and Rep. Marlene Anielski (R-Walton Hills) introduced a bill to curb these cafes at the request of Ohio Attorney General Mike DeWine.

H.B. 195 would require sweepstakes cafes to be licensed and regulated by the Ohio Casino Control Commission and would also allow localities to outlaw the cafes if they desired to do so. The legislation would regulate distributors and operators of skill-based amusement machines and sweepstakes terminal devices.

JoAnn Davidson, head of the Casino Commission, said that the casino enabling legislation also includes general language for regulation of skill games.

Sweepstakes terminal device is defined as "a mechanical, video, digital or electronic machine or device, that is owned, leased, or otherwise possessed by any person conducting a sweepstakes, or by that person's partners, affiliates, subsidiaries, or contractors, that is intended to be used by a sweepstakes participant, and that is capable of displaying information on a screen or other mechanism."

Skill-based amusement machine "means a mechanical, video, digital, or electronic device that rewards the player or players, if at all, only with merchandise prizes or with redeemable vouchers redeemable only for merchandise prizes, provided that with respect to rewards for playing the game all of the following apply:

1. The wholesale value of a merchandise prize awarded as a result of the single play of a machine does not exceed ten dollars;
2. Redeemable vouchers awarded for any single play of a machine are not redeemable for a merchandise prize with a wholesale value of more than ten dollars;
3. Redeemable vouchers are not redeemable for a merchandise prize that has a wholesale value of more than ten dollars times the fewest number of single plays necessary to accrue the redeemable vouchers required to obtain that prize; and
4. Any redeemable vouchers or merchandise prizes are distributed at the site of the skill-based amusement machine at the time of play."

The bill is currently pending vote in committee.

4. Casino

4.1 Legislation

While casinos were traditionally illegal in Ohio, voters ultimately offered their approval for casino-style gaming in a December 2009 referendum.

Specifically, the amendment authorized one casino facility "at a specifically designated location within each of the cities of Cincinnati, Cleveland, Columbus and Toledo." The casinos are approved to offer "types of casino gaming authorized by Michigan, West Virginia, Indiana, and Pennsylvania as of January 1, 2009 or games subsequently authorized by those states."

The ballot initiative also called for a fixed 33 percent tax on gross casino revenues received by each casino operator of the four casino facilities and required "each initial licensed casino operator to pay a single $50,000,000 fee to be used for state job training purposes and make a minimum initial investment of $250,000,000 in its facility."

In addition, the casinos are authorized to operate

"24 hours a day, seven days a week, at the discretion of the casino operator and require that the casino facilities shall be subject to all state and local laws and provisions related to health and building codes, but that no local zoning, land use laws, subdivision regulations or similar provisions shall prohibit the development or operation of the casinos at the designated sites."

Finally, the amendment created the Ohio Casino Control Commission to license and regulate casino operators, management companies retained by such casino operators, key employees, gaming-related vendors, and all gaming authorized by this constitutional provision.

On May 4, 2010 Ohio voters approved a second amendment relating to gaming in Ohio. The amendment moved the location of the Columbus casino to an area outside of the city but within Franklin County, where the Delphi Auto Plant used to be located. The amendment also provided that the casinos were exempt from zoning, land use laws, and regulations except for those related to health and building codes.

"Each of the four casino facilities shall be subject to all applicable state laws and local ordinances related to health and building codes, or any related requirements and provisions. Notwithstanding the foregoing, no local zoning, land use laws, subdivision regulations or similar provisions shall prohibit the development or operation of the four casino facilities set forth herein . . . ."

4.1.1 House Bill 519

Ohio House Bill 519 was signed into law by Governor Strickland on June 10, 2010 around 4am, following a drawn out session over the appropriate regime under which casino style gaming will be regulated within Ohio. The bill went into effect in the following fall.

Casino Control Commission

The Act lays out the framework for the Ohio Casino Control Commission, which is comprised of seven members. The members are appointed by the Governor, with the advice and consent of the Senate. The Ohio Governor will retain discretion to reappoint commissioners, although commissioners are prohibited from appointment for more than three consecutive terms. Commissioners will bear the majority of the regulatory and licensing responsibilities associated with the state's casinos. State law enforcement will be involved in some aspects of the licensing procedure, including background investigations on applicants. The first appointments were made in October 2010.

The new law requires that all of the commissioners are Ohio residents. Eligible commissioners cannot have any ties to casino operators, or any of the casino facilities, although at least one commissioner is required to reside within a county in which there is a casino. And, at least one commissioner is required to be experienced with criminal investigation and law enforcement, while there must also be at least one commissioner with experience as a CPA. At least one commissioner is also required to be admitted to practice law in the state of Ohio. The Commission is prohibited from containing more than four individuals who are of the same political affiliation.

Commissioners are not restricted to working exclusively on the Commission, and they are entitled to receive $60,000 annually for their role.

Joint Committee on Gaming and Wagering

This law also creates the permanent joint committee on gaming and wagering. This committee will consist of six members, and the Ohio Speaker of the House is required to appoint the Committee's three members of the House, while the Senate President is required to appoint three Senate Committee members. This committee is tasked with the following responsibilities:

• Review of all constitutional amendments, laws, and rules governing casino gaming and casino administration.
• Review of all constitutional amendments, laws, and rules governing all authorized gaming and wagering activities within the state of Ohio.
• Make recommendations to the state's general assembly regarding changes, amendments that are desired with regards to casino gaming and administration in Ohio.
• Provide the Governor and General Assembly with an annual report regarding operation and administration of casino gaming.
• Review all fees and penalties stipulated within applicable laws and review suggested changes.
• Study proposed constitutional changes regarding casino gaming and provide the state's general assembly with information regarding the adequacy of such rules and desirability from a public policy perspective.

Debt Transactions by Casino Operators

Ohio casino operators are required to invest a minimum of $250m in capital investment toward each venue.

Casino operators are also prohibited from entering into any 'debt transactions' without the consent and approval of the state's Casino Control Commission. 'Debt transactions' are defined as, 'a transaction by a casino operator concerning a casino facility totalling five hundred thousand dollars or more in which a casino operator acquires debt, including bank financing, private debt offerings, and any other transaction that results in the encumbrance of assets.'

To obtain Commission approval, operators are required to provide the following information:

• The names and addresses of all parties to the debt transaction.
• The amount of the funds involved.
• The type of debt transaction.
• The source of the funds to be obtained.
• All sources of collateral.
• The purpose of the debt transaction.
• The terms of the debt transaction.
• Any other information deemed necessary by the commission.

Wager Location and Age Restrictions

With regards to operational stipulations, this law requires that wagers may only be permitted by individuals physically located at an Ohio casino. Individuals under the age of 21 are prohibited from gambling in Ohio casinos.

Wagers and Payout Percentages

With regards to minimum and maximum wagers, casino operators will also retain a certain level of discretion on these measures, although they will also be subject to Commission approval.

Section 3772.20(A), the law stipulates:

"[N]o slot machine shall be set to pay out less than the theoretical payout percentage, which shall be not less than eight-five percent, as specifically approved by the Commission. The Commission shall adopt rules that define the theoretical payout percentage of a slot machine based on the total value of the jackpots expected to be paid by a slot machine divided by the total value of slot machine wagers expected to be made on that slot machine during the same portion of the game cycle. In determining the theoretical payout percentage, the commission may consider market conditions, the payout percentage in other states, the impact on gaming within the market, or any other factor the commission deems relevant. The commission may adjust the payout percentage at any time."

Slot Machines and Testing

Each casino is authorized to operate up to 5,000 slot machines, although there is not a cap on the number of table games. Under this law, all slot machines that are currently authorized in the following states will be permitted for operation in Ohio casinos, upon approval by the Ohio Casino Control Commission: Indiana, Michigan, Pennsylvania, and West Virginia. It's worth noting, however, that operators will have discretion in terms of which type of machines they choose to operate.

All operating machines in Ohio casinos will also be required to operate on a cashless technology system.

With regards to slot machine testing and the certification of independent testing laboratories, section 3772.31(B) requires that the Commission certify an independent lab, which will be tasked with testing and technically evaluating all slot machines, slot accounting systems and electronic table games. In order to be eligible, the laboratory must be accredited by a national accreditation body. Under the language of this provision, the Commission has discretion to certify a lab if it is, 'competent and qualified to scientifically test and evaluate electronic gaming equipment...and otherwise perform the function assigned. An independent testing laboratory shall not be owned or controlled by, or have any interest in, a gaming related vendor of electronic gaming equipment.'

4.1.2 House Bill 277

Governor John Kasich signed House Bill 227 into law in July 2011, becoming effective October 17, 2011. The law makes multiple changes, clarifications and additions to the original casino-implementing legislation.

Casino Opening in Phases

The act permits a casino facility to be opened in phases and to have gaming areas in one or more buildings, facilities, rooms or areas that together constitute a single casino facility within the boundaries of one or more of the properties described in the Ohio Constitution, and, if located on more than one of those properties, is connected by one or more of the following:

1. Property owned by the casino operator or any of its affiliates;
2. Property leased by the casino operator or any of its affiliates;
3. Access over property under the right of the casino operator or any of its affiliates, whether it be by skyways, walkways, roadways, easements, or rights of way;
4. Non-gaming amenities.

The act removes a provision that stated that if a casino operator who had opened an initial location was making substantial progress, as determined by the Ohio Casino Control Commission, on a substitute casino facility on constitutionally approved parcels within the same city, the Commission must have included amounts spent by the casino operator to develop those parcels, and must have granted an additional 36-month extension to the casino operator who was developing on those parcels.

The act also removes a provision that stated that the Commission, upon the request of the casino operator, may have also approved up to 24 months of transitional operations by the casino operator on multiple noncontiguous constitutionally approved parcels while transitioning from the initial location to the new facility, provided the facilities are connected by property and structures, owned, leased, or under the exclusive control of the casino operator.

Central System

Under the act, the Ohio Casino Control Commission must not require the use of a central system by a casino operator if the casino operator is in compliance with the Casino Law.

If the Commission determines, after written notice to the casino operator and a hearing under continuing law provisions regarding casino-related licensing hearings, that a casino operator is not in compliance with the Casino Law, the Commission can determine it to be necessary to require the casino operator to install and implement a central system under conditions the Commission may require. Before such a hearing, the Commission must provide the casino operator with written notice that the casino operator is not in compliance with a specific requirement of the Casino Law, describe the requirement, and provide the casino operator at least 30 days to cure the noncompliance or, if the cure cannot be reasonably rectified within that time, require the casino operator to demonstrate to the Commission's satisfaction that the casino operator is diligently pursuing the required cure.

Under former law, the Commission could determine it to be necessary and adopt rules to authorize use of a central system.

Promotional Gaming Credits

Under the act, "promotional gaming credit" means a slot machine or table game credit, discount or other similar item issued to a patron to enable the placement of, or increase in, a wager at a slot machine or table game. The act specifies that casino operators and management companies may provide promotional gaming credits to their patrons, but states that the credits are subject to the Commission's oversight.

Further, the act clarifies, for purposes of the gross casino revenue tax, that gross casino revenue does not include promotional gaming credits except to the extent that a casino patron using a credit pays money to match the credit in order to use it.

Gasoline Purchase Card

The act establishes that a card for the purchase of gasoline is a redeemable voucher for purposes of the statutory definition of a "skill-based amusement machine" even if the skill-based amusement machine, for the play of which the card is awarded, is located at a place where gasoline may not be legally distributed to the public or the card is not redeemable at the location of, or at the time of playing, the skill-based amusement machine. The value of such a card cannot exceed $10.

Continuing law specifies requirements for skill-based amusement machines, and requires that winning players be rewarded with only merchandise prizes or with redeemable vouchers for only merchandise prizes. Neither a merchandise prize nor a redeemable voucher can have a value of more than $10, and must be distributed at the site of the skill-based amusement machine at the time of play.

4.2 Licensing

With regards to licensing issues, the Ohio Casino Control Commission retains regulatory control and oversight for the licensing process. Licenses can be issued for up to three years. Upon expiry, the Commission will re-evaluate an applicant's suitability, and conduct a new background investigation.

The following measures are applicable for the licensure of a casino operator, management company, holding company, key employee, casino gaming employee, or vendor related license.

Under section 3772.10(A) of the Act, in assessing an applicant's suitability for a license, the Commission will consider the following:

• Applicant's reputation, experience and financial integrity.
• An applicant's holding company – or any other individual that directly, or indirectly, controls an applicant, will also be subject to review of reputation, experience and financial integrity.
• Applicant's (and its affiliates) past and present compliance with casino related licensing requirements in any applicable jurisdiction.
• Indictment, conviction, or a plea of guilt or no contest pertaining to any criminal offense (both felony and misdemeanor) – under any jurisdiction's laws.
• Applicant's filing for bankruptcy of involvement with adjusting, deferring, or suspending any debts.
• Applicant's involvement in litigation involving any business practices.
• Awarding the license would undermine the public's confidence in the state's casino industry.

Evidence of the following issues for any applicant will render an individual ineligible for a license in Ohio:

• Conviction of a 'disqualifying offense', which is defined as, 'any gambling offense, any theft offense, any offense having an element of fraud or misrepresentation, any offense having an element of moral turpitude, and any felony not otherwise included in the foregoing list.'
• Inclusion of false information on the application.
• Serves a casino control commissioner.
• Ownership interest that violates conflict provisions – unless the Commission decides to provide a waiver.
• Membership, or employment with a gaming regulatory body of a governmental unit in this state, another state, or the federal government.
• Employment with a governmental unit of the state of Ohio.

Casino operators are prohibited from obtaining a license until the state receives a $1m surety bond, which must be made payable to the state. This bond is conditioned on the operator's compliance with the provisions in this law, and the applicable constitutional amendment permitting casino style gambling in the state of Ohio.

Application instructions for a casino owner, management company, operator or holding company can be found here. The Casino Control Commission is still in the process of drafting licensing regulations, as well as the other regulations necessary to oversee gaming in the state.

In 2011, the legislature passed a law that made some amendments to the original casino law.

Casino Application – Ownership Disclosure

The act changes the disclosure threshold that a casino operator, management company, or holding company license application must contain regarding the identity of persons having a direct or indirect interest in the applicant for which the license is sought to greater than 5 percent for all companies, as opposed to five percent for publicly traded companies and three percent for privately held companies under prior law.

Casino-Related License Renewal

The act specifies that the Ohio Casino Control Commission can assess a renewal fee for casino-related licenses in the amount necessary to cover the Commission's costs associated with the review of the license renewal application. Also, the act clarifies that a license must be renewed for three years. Under former law, a license could be renewed for not more than three years.

5. Racing

5.1 Statistics

As evidenced in the tables below, Ohio's racing market is facing an increasingly challenging scenario. Recent years have been characterized by significant and consistent declines in the live handle at thoroughbred and standard bred tracks. Since 2002, live handle at both types of tracks has decreased every year.

In 2008, total handle was $322m and in 2009 it stood at $282m. As outlined in the table below, 2010 also saw handle totals plummet across all venues, following trends seen in 2009 and 2008.

Source: GamblingData, Ohio State Racing Commission

Source: GamblingData, Ohio State Racing Commission

5.2 Legislative Framework 

5.2.1 Ohio Horse Racing Act

Horse racing in Ohio is governed by the Ohio Horse Racing Act, which is codified in chapter 3769 of the Ohio Revised Code. The Act came into effect in 1933 as the devastation of the depression took hold, and the Act was aimed to rejuvenate the state's economy by generating tax revenues and job opportunities. 

The act authorizes pari-mutuel wagering on live horse racing that are conducted at Ohio tracks, as well as on races conducted at race tracks around the world.

Funds from horse racing are distributed to fund the Ohio State Racing Commission, support the horse racing industry and the related agricultural industry, as well as funding the PASSPORT program, which is a government designed program which aims to assist Medicaid eligible Ohio residents with long term care services and supports their need to stay in their homes.

With regards to regulatory control, the Ohio Racing Act requires that the Ohio State Racing Commission regulate and oversee all racing activities within the state. Comprised of five members, all of whom are appointed by the Governor, the commission is dedicated to the, "protection, preservation and promotion of horse racing and its related industry components." 

Commissioners serve four year terms, and the Ohio Governor is authorized to remove any commissioner for, "malfeasance, misfeasance, or non-feasance in office, giving the member a copy of the charges against the member and affording the member an opportunity to be publicly heard in person or by counsel, with at least ten days' notice."  

The commission's core duties are to establish and implement rules and conditions under which horse racing in Ohio may be conducted. Furthermore, they are required to establish and uphold the types of authorized wagering, the number of races, the procedures on wagering and the wagering information that should be distributed to the public. 

The commission is also responsible for the entire licensing process for the industry, and they are authorized to issue, deny, suspend, diminish, or revoke horse racing licenses. Furthermore, they are also authorized to impose fines for up to $10,000 on any license holder that violates the rules or orders of the commission. The commission also establishes and enforces licensing fees, which must be directed to the state's racing commission operating fund, which is held within the state treasury, and which may be disbursed to defray the commission's operating costs, salaries and expenses, and the cost of enforcing the state's racing laws. 

5.2.2 Racetrack Relocation

In 2011, Ohio legalized the operation of video lottery terminals (VLTs) at the state's racetracks. The law also allows racetracks eligible to become VLT vendors the ability to relocate.

For a period of two years after the act's effective date, which is October 17, 2011, the act permits a racetrack permit holder who is eligible to become a video lottery sales agent to apply to the State Racing Commission to move its track to another location using the following approval procedure:

1. The permit holder must submit, for the consideration of the State Racing Commission in its determination on whether to approve the transfer, its proposal to the State Racing Commission and must specify the location of the new track and the incremental economic benefits the permit holder is willing to provide to the state.
2. The State Racing Commission must approve or deny the transfer.
3. The permit holder can apply to the State Lottery Commission for a video lottery sales agent license at the new track location.

The act requires the State Racing Commission to give preference to transfer proposals involving moves to locations in which neither horse-racing meetings nor casino gaming have been authorized before July 1, 2011.

However, under the act, a permit holder who is located on property owned by a political subdivision can move its track to a new location within 20 miles of its current location. That permit holder must not be charged any fee by the state in exchange for applying for a move, for having its move approved, or for moving its existing track as specified in this paragraph. The State Racing Commission must give a preference greater than the preference described in the preceding paragraph to such a permit holder as part of the approval procedure.

A permit holder that is authorized to transfer its track and that is a video lottery sales agent can operate at a temporary facility at its new location while constructing or otherwise preparing its new track at that location. A temporary facility must meet any minimal capital investment and structure requirements established by the State Racing Commission.

The act allows the state to discuss and negotiate with parties regarding the transferring of racing permits to new track locations and may, in its discretion, enter into agreements regarding the transfer of permits to new locations in advance of the process set forth above.

Notwithstanding any other provision of Ohio law, the act states that for a period of two years after its effective date, any person holding a permit under the Horse Racing Law to conduct live horse-racing meetings at a facility owned by a political subdivision can apply for, and the State Racing Commission can grant, a permit to conduct horse-racing meetings at a location at which such meetings have not previously been conducted. The Commission may only grant such an application if the proposed location is in the same or a contiguous county and is within 50 miles of the current location associated with the permit, but is not in the same county as another location at which live horse-racing meetings are conducted.

The act specifies that the Gambling Law does not apply to, affect, or prohibit lotteries or video lotteries conducted under the act and the Lottery Law.

The act permits the State Racing Commission to adopt rules under the Administrative Procedure Act to effectuate the act and to establish fees to relocate tracks for applicants. The Commission cannot adopt rules regarding the operation of lotteries or video lotteries.

The act specifies that the procedure described above "notwithstands" certain sections of continuing law. One of these provisions allows for a track relocation of up to 56 racing days for tracks damaged by fire or other cause under certain conditions. Those continuing law sections also set out the procedure, required information, and fees for a person who desires to hold or conduct a horse-racing meeting, wherein the pari-mutuel system of wagering is allowed, to apply to the State Racing Commission for a permit to do so.

Also, this provision requires, if the application requests a permit for a horse-racing meeting at a location at which such a meeting has not previously been conducted by permission of the Commission to include a petition signed by at least 51 percent of the qualified electors voting for Governor at the most recent general election in the townships in which the racing meeting is proposed to be conducted, together with a certificate of the board of elections of the counties in which the townships are situated that the signatures on the petition are valid and in compliance. Apparently, this petition procedure would not need to be followed under a relocation allowed under the act.

5.3 Licensing 

5.3.1 Pari-mutuel Wagering

The Ohio Horse Racing Act requires that, "any person, association, corporation, or trust desiring to hold or conduct a horse-racing meeting, wherein the pari-mutuel system of wagering is allowed, shall make an application to the state racing commission for a permit to do so." 

All licensing applications must be accompanied by a payment which reflects $100 per day that the applicant desires to conduct racing operations.

Licensing Restrictions

Live thoroughbred racing can only take place between twelve noon- seven pm for running racing, except upon a special application to the commission, in which occasional 9 am starts may be permitted. Also, racing may not be conducted after the tenth of December in any year, and licenses cannot be issued for more than an aggregate of fifty six racing days in any one calendar year. 

If a special application is made, five additional licensing days may be approved.  Also, a license may not be issued which would permit live racing programs on the same hour at more than one track in one county or on tracks in operation in 1975 and within fifty miles of each other. Also, no other form of pari-mutuel wagering, aside from horse racing, is permitted within 75 miles of a track where horse racing is conducted.  State and local fair activities are however excluded from this rule.

6. Lottery    

Ohio's lottery is administered by the Ohio Lottery Commission. It is ranked as the tenth largest in the nation, with nearly 9,000 licensed retailers. Since the lottery's inception in 1974, lottery profits have been designated to the state's public school system.

6.1 Statistics

For the fiscal year 2010, ticket sales set a record, reaching $2.48bn and exceeding the previous year's sales by nearly $70m. The increase in ticket sales for the Ohio Lottery was primarily due to higher Mega Millions jackpots, the introduction of Powerball/Power Play, and the addition of KENO/Booster. Online ticket sales increased by $42.9m or four percent and instant ticket sales increased by $29.6m or 2.2 percent over 2009.

$728.6m of the lottery's total revenue was distributed to Ohio's schools, which was up by $26.3m from the 2009 fiscal year. This is the 'second-highest profit transfer in the Lottery's 36-year history.' Since inception, the Ohio lottery has contributed more than $17bn toward the state's public school system.

For 2011, the lottery yet again saw record sales at $2.6bn with a total transfer of $738.8m to the state.

The Ohio Lottery's sales increases are shown on the chart below:

6.2 Legislative Framework 

Definition of Lottery

The Ohio constitution prohibits any lotteries except those that are conducted by a state agency and which distribute net proceeds from the lottery to primary, secondary, vocational or special education.  

While the Ohio constitution doesn't define 'lotteries', Ohio courts have defined a lottery as a "scheme whereby a monetary consideration is paid and the winner of the prize is determined by lot or chance."

Additionally, in 2009 the General Assembly passed Am.Sub.H.B. No. 1 (House Bill 1, 'HB 1'), which included an amendment to chapter 3770 of the Revised Code. This amendment defined lottery as follows, "lottery. . .includes, and since the original enactment of this section has included, the authority for the commission to operate video lottery terminal games."

Ohio Lottery Commission

The Ohio lottery commission was created in 1973, following voter approval to amend the constitution and legalize a state lottery. Comprised of nine members who are appointed by the state governor, with the advice and consent of the senate, the commission cannot be composed of more than five members from the same political party. Commissioners are also prohibited from holding any pecuniary interest in any contract or license that has been issued by the lottery commission.

The commission is responsible for the following:

• Establishing the rules which govern all state lottery games.
• The type of lottery to be conducted.
• The prices of lottery tickets.
• The number, nature, and value of prize awards, the manner and frequency of prize drawings, and the manner in which all prizes will be awarded to winning ticket holders.  
• The manner in which lottery sales revenues are to be collected, including authorization for the director to impose penalties for failure to transfer funds in a timely manner.
• The amount of compensation provided to lottery ticket retailers.
• Establishing and upholding the licensing criteria as well as criteria for suspending or revoking retailer licenses.  

At least one commissioner must represent an organization that deals with problem gambling and assists recovering gambling addicts. All commissioners are required to have professional or educational experience in business administration, management, sales, marketing or advertising. 

The state governor has discretion to remove a commissioner for "malfeasance, misfeasance, or nonfeasance in office."    

Also, the following will render an individual ineligible to serve as a commissioner: a felony conviction in any jurisdiction; a first, second or third degree misdemeanor that involves gambling, fraud, or misrepresentation, theft, or any crime of moral turpitude. 

Lottery prizes will not be awarded to any officer or employee of the state lottery commission, any officer or employee of the auditor of state, or any relative or spouse of a lottery commissioner. Also, the director of the lottery commission has discretion to prohibit state lottery vendors, and their employees, from claiming a lottery prize award. 

6.3 Licensing 

Before any retailer is granted a license to sell lottery tickets, the director of the Ohio Lottery Commission must consider the following factors [section 3770.05]:   

• Retailers cannot rely upon lottery ticket sales as their sole business occupation.
• Financial responsibility and security of the applicant and the applicant's business or activity.
• The public's accessibility to the applicant's place of business.  
• The sufficiency of existing licensed agents to serve the public interest.
• Volume of applicant's expected sales.
• Any other factors pertaining to the public interest, convenience, or trust.  

The following will automatically render an individual or entity ineligible for a license from the lottery commission, and will also authorize the commission to suspend or revoke an already issued license:

• Felony conviction for a crime involving moral turpitude.
• Conviction of an offense for illegal gambling.
• Guilty of fraud or misrepresentation.
• Violating any commission rule or order.
• Illegal trafficking in food stamps.  

6.3.1 The Lottery Commission's VLT Proposed Rule Set

7. Charitable Bingo

7.1 Statistics

Ohio has the biggest charitable gaming in the county, according to the National Association of Fundraising Ticket Manufactures (NAFTM) 2009 annual report. Ohio charitable gaming sees over $1bn in gross receipts annually, the vast majority of which is generated from pull tab revenues. However, Ohio does not levy a tax on charitable gaming but only collects licensing fees, meaning the portion of revenues flowing from the industry to the state is much smaller than many other states that operate charitable gaming.

However, the 2010 NAFTM annual report does not include Ohio. The Ohio Attorney General also maintains financial information on charitable bingo operations on a per county and per licensee basis.

7.2 Legislative Framework 

Ohio law authorizes charitable bingo as long as the games are operated by government recognized charitable organizations defined under the Ohio Revised Code – 2915.01(H). Eligible charitable organizations include any tax exempt religious, educational, veteran, fraternal, sporting, service, non-profit medical, volunteer firefighter, senior citizen organizations, youth athletics or amateur athletics. 

The law was enacted to expand charitable organization's opportunities to raise funds to further their charitable contributions to their communities.  

Any proceeds generated from bingo may be used for prize payouts and for the costs associated with purchasing or leasing bingo supplies, annual licensing fees, bank fees and service charges for a bingo session or game account, audits and accounting services, safes, cash registers, hiring security personnel, advertising bingo, renting premises for a bingo session, as well as any expenses for maintaining and operating a charitable organization's facilities.  Also, Ohio law prohibits charitable bingo operators from receiving any wage or commission for conducting the games.   

7.3 Licensing

Administering and monitoring Charitable Bingo licensing in the State of Ohio is the responsibility of the Ohio Lottery Commission. The Lottery Commission is responsible for licensing and renewals of existing organizations and site visits. Applications can be obtained from either the Lottery Commission or the Attorney General's Office.

A license is required to conduct bingo, as conducting any forms of bingo without a license is a felony of the fourth degree – the only forms of bingo exempt from this requirement are those conducted solely for amusement purposes or those operated by a 'multi-purpose senior center.'

Also, generally, charitable organizations must be in continuous existence in Ohio for at least two years prior to applying for a bingo license. With regards to fraternal organizations and non-profit medical organizations, they must establish their existence for five years, prior to making the application.  

Upon obtaining a bingo license, organizations are required to: 

• Conspicuously display the bingo license and serial numbers on all bingo deals in play.
• Conduct all bingo operations within the authorized times and dates.
• Conduct bingo in the same county as the organization's principle place of business.
• Prohibit individuals under 18 years of age from playing.
• Maintain all required records for three years.
• Comply with mandatory sales price requirements for all games.
• Ensure that all bingo operators are free of any felony convictions.  

The Ohio Attorney General issues three types of licenses:

Type I License: A type I license authorizes license holders to conduct 'traditional bingo' no more than two times per week for no more than five hours per session – the scheduled hours for these sessions must be between 10am – midnight. 

Type II License: A type II license authorizes license holders to conduct 'instant bingo' during the hours in which 'traditional bingo' is conducted and for not more than two hours before and two hours after that period. The earliest time to begin type II bingo sales is 9am for traditional bingo that begins at 10am.   

Type III License: A type three licenses authorize the license holder to conduct instant bingo other than at a traditional bingo session. For example, veteran, fraternal and sporting organizations may conduct type III bingo seven days per week, up to 12 hours per day, between the hours of 10 am – 2pm.  The 12 hours do not need to be consecutive – other qualified 501(c)(3) charitable organizations do not have any day or time restrictions for the conduct of type III instant bingo.

Distributor Licenses: The Ohio Attorney General is authorized to issue Distributor's licenses to anyone distributing bingo supplies for use within the state of Ohio. Licenses are valid for one year with an initial and annual fee of $5,000.  Distributors are prohibited from participating in bingo on behalf of a charitable organization, and they are also prohibited from obtaining any ownership interests in premises used for the conduct of bingo.

A listing of licensed manufactures and distributors can be found here.

8. Tax

The following section details Ohio's system of taxation relating to casino gaming, racing and video lottery terminals.

8.1 Casino

Gross Gaming Revenue Tax

Ohio has a gross gaming revenue tax of 33 percent, the proceeds of which would be distributed in accordance with the following:

• 51 Percent, estimated at $306m per year, to the state's 88 counties.
• 34 Percent, estimated at $204m per year, to public school districts – funds would be distributed by county to all public school districts based on student population.
• 5 Percent, estimated at $30m per year, to the casino host cities.
• 3 Percent, estimated at $18m per year, to the Ohio State Racing Commission to revitalize the state's horse racing industry.
• 3 Percent, estimated at $18m per year, to fund the operations of the Ohio Casino Control Commission.  However, when video lottery terminals are introduced to the state's racetracks the estimate has been revised down to $12.8m per year.
• 2 Percent, estimated at $12m per year, to training opportunities for the Ohio law enforcement community.
• 2 Percent, estimated at $12m per year, toward treatment of problem gambling and substance abuse, as well as research related to problem gambling.

Commercial Activity Tax

Casinos are also subject to the state's commercial activity tax. Casino gaming receipts of casino operators are treated the same under the commercial activity tax as they are treated under the gross casino revenue tax.

In May and June 2011 various versions of the state's budget contained provisions seeking to apply the CAT to the total amount wagered, prior to deducting funds paid out to customers. The states two casino operators strongly opposed the application of the tax to total wagers and took to actively lobbying the Governor's office and the legislature to resolve the issue; even going so far as to halt construction on some of the venues. The tax debate was officially settled on July 15, 2011 when Governor Kasich signed House Bill 277 into law. The bill withdraws the states contention that the CAT should apply to total wagers and agrees to treat casino gaming receipts the same under the CAT as they are treated under the gross casino revenue tax.

8.2 Gambling Losses

Included within House Bill 519, which established the regulatory framework for the new casinos, was a tax deduction for gambling losses. The deduction provision permits Ohio residents to deduct any gambling related losses across all sectors. Additionally, the bill does not require that losses occur within the state – residents will be permitted to deduct losses that take place outside of Ohio. When the bill was passed then Governor Strickland opposed the measure and indicated he intended to undo it during 2011 budget discussions, however he failed in his re-election bid. It is unknown whether Governor Kasich shares Strickland's sentiments on the gambling loss issue. To date he has not specifically sought to overturn the measure.

8.3 Racing

Pari-mutuel wagering taxes are dependent upon the total amount wagered each racing day, and in accordance with the following provisions:   

These tax rates are listed in chapter 3769.08 of the Ohio Revised Code. As of January 1, 2009, the City of Huber Heights imposed a tax on lottery and gambling winnings by amendments to Chapter 191 of the City's Codified Ordinance. However, only citizens of the City are liable to pay this tax.

8.4 Video Lottery Terminals

Video lottery terminals (VLTs) at racetracks were legalized by Ohio in 2011 and are not yet operational. Ohio plans to apply a gross gaming revenue tax of 33.5 percent to VLT operations.

9. Legislation

The following section contains the most important pieces of legislation relating to the regulation of gambling in Ohio.

Ohio Revised Code Chapter 2915 Gambling

Ohio Revised Code Chapter 3769 Horse Racing

Ohio Revised Code Chapter 3770 State Lottery

10. Regulator and Operator Contacts

Ohio State Racing Commission
77 South High Street, 18^th Floor
Columbus, OH 43215-6108
Tel: +1 (614) 466-2757

Ohio Lottery Commission
Frank J. Lausche Building
615 West Superior Avenue
Cleveland, OH 44113

Ohio Attorney General
State Office Tower
30 E. Broad Street, 17th Floor
Columbus, OH 43215-3428
Tel:+1 (614) 466-4320