The Tennessee Education Lottery Corporation on Tuesday began the process of handing over the task of regulating sports betting in Tennessee to the nine-member Sports Wagering Advisory Council, and TELC Director Rebecca Hargrove sounded like she could not be happier.
“We are elated with the legislation and how it passed,” she said, of a pair of bills that still require Gov. Bill Lee’s signature. “You can tell us what you want us to keep doing and what you don’t” ahead of the Jan. 1, 2022, handover.
Both the Senate and House passed bills that strip the TELC of its sports wagering regulatory power and give it to the council, which will, over the next seven months hire an executive director and staff, lease work space, and develop its own set of sports betting regulations. While the bills essentially allow for the council to become the state’s gaming commission separate from the lottery, the seven-month runway to do so could make for a bumpy ride.
Hargrove was clear in saying that the TELC would do whatever the advisory council wants over the next seven months, but that her staff cannot continue to regulate and oversee sports betting with its current staff. Since operators went live in Tennessee on Nov. 1, 2020, the number of live, licensed betting brands has grown from four to seven with more to come, and with each new platform comes more work.
Hargrove went on to suggest that the TELC could stop processing applications if the council desires or could pass press inquiries along to the council. In the end, the decision, at least for now, is that the TELC will generally keep doing what it’s doing while the council begins its search for an executive director, but the TELC will now direct media inquiries to the advisory council.
“We can do everything if you want, or we could do nothing if you want,” she said during the meeting.
Hargrove: April handle was $172 million
At the top of the meeting, Hargrove announced that while April revenue numbers weren’t officially available yet, she could share that sportsbooks took in $172 million in handle, resulting in a $2.8 million tax payment to the state for the month.
For the first six months of legal sports betting, those in Tennessee wagered just over $1 billion and the state received $18.5 million in tax receipts. The TELC launched four operators — BetMGM, DraftKings, FanDuel, and Tennessee Action 24/7 — on Nov. 1, 2020.
Hargrove also noted that seven operators are now up and running, and two more applications are under review. Though Hargrove did not reveal the names of the applicants, she did say that both are traditionally “peer-to-peer” wagering platforms that wish to be approved as more traditional operators until peer-to-peer wagering is expressly permitted in Tennessee. Among the companies active in the U.S. that have a specialty in peer-to-peer wagering are Smarkets, which is live in Colorado, and Zen Sports, which announced that it filed its Tennessee application in November. The app is not yet live in any U.S. jurisdiction.
According to TELC Vice President and General Counsel Alonda W. McCutcheon, peer-to-peer wagering is legal under the Tennessee’s sports betting law, but the TELC (now) and the advisory council (going forward) must decide if — and what kinds of — peer-to-peer wagering would be allowed.
Turnover dominates meeting
Tuesday’s meeting centered, for the most part, around how the advisory council will move forward in the new landscape, and it sounded like most agreed the first move would be to hire an executive director. There was limited discussion about that process, with the goal of getting someone in place sooner rather than later.
Hargrove said her staff is currently stretched, and that it could continue to oversee sports betting “for six weeks, but not for six months.” The trick during this transition period will be to get key personnel into place while avoiding any hiccups in the approval and regulatory processes. The TELC suggested the council will be about 12 people in addition to an insurance provider and other partners — all before the end of the year.
The situation could certainly be contentious, but parties from both sides sounded almost jovial during the meeting, the first held in person in nearly a year. Media could listen via telephone, but video was not available, so identifying speakers was, at at times, challenging.
“We don’t want it to be acrimonious, we want to grow what you’ve done,” said council member Tom Lee.
The only action taken by the council Tuesday was a motion to bring to the Sports Betting Committee that operators should get notice that they are going to be fined, in order to give an operator the chance to respond before the fine is imposed.
The action appears to be a response to the TELC’s botched attempt to suspend TN Action 24/7 in March in response to an internal investigation finding, allegedly, widespread instances of fraudulent financial transactions occurring on the sportsbook platform due to a “lack of internal controls.” The sportsbook brought the matter to court and won an order for an injunction. In a decision in Chancery Court, Chancellor Patricia Head Moskal wrote that the TELC’s decision to suspend the license was “erroneous, or arbitrary and capricious under the Act and Rules.” The sportsbook had its license restored and resumed operations later in the month.
The TELC regulatory handover permeated all parts of the meeting, as TELC staff shared information about applicants, fines/disciplinary action, and other items, while being clear about how it makes decisions and suggesting that the council will have to find its own process going forward.
