The final form of the Tennessee sports betting rules, regulations and market are still taking shape, with more light shed after a pair of meetings on Tuesday and Wednesday.
One of the most offensive proposed rules — based on the volume and nature of the responses to it — was a clause that would have required licensed operators to keep a minimum of 85% of all wagers placed, more akin to a fixed matrix lottery product or parimutuel takeout. That runs counter to sports betting, which is a more variable and lower margin venture but can reach some pretty incredible volumes as far as total dollars wagered, as evidenced by recent records in New Jersey and Nevada.
It appears, however, that regulators at the Tennessee Education Lottery Corporation (TELC) are listening to stakeholders and the nine-member appointed Tennessee Sports Wagering Council. From the Wednesday meeting of the Board of Directors:
NEW: At the Tennessee Lottery Board of Directors Meeting today, the Lottery said it will go with 92% for a fixed payout cap on sports wagering. The cap will be reflected in the next version of the regulations.
Previous cap proposal was 85%.
Regs expected to be done in ~2 months
— Brian Pempus (@brianpempus) February 19, 2020
There is not yet a required minimum hold requirement for sports betting, at any number, in any legal U.S. jurisdiction. TELC Chief Rebecca Hargrove has pointed to such rules in France, Greece and Switzerland to demonstrate their existence in Europe.
Some operators may suck it up and manufacture a way to meet the requirement, to the probable detriment of Joe Sports Bettor, while others may shy away from the Tennessee market (where a license costs $750,000 annually), seeing the move from 85% to 92% going from an “untenable” position to a “less untenable” position.
Said veteran Las Vegas oddsmaker Robert Walker, Director of Sportsbook Operations for US Bookmaking.
“Any cap or in this case mandatory hold puts a brake on competition. A straight bet with a 20 cent line (-110 on both sides) is a 4.5% theoretical hold.  In reality we hold much lower than that due to line movement.  Let’s say 3% for arguments sake and our return to players is 97%.
Historically books in Nevada hold much less than 8%. Any type cap like this will eliminate large straight bets as well, forcing those players offshore. We don’t quite understand the repercussions of not holding 8%, however, so there may be some room to maneuver.
At the end of the day handle and hold percentage mean very little. Revenue is all that matters. Any cap negatively impacts our ability to seek optimal revenue.
Public comments, path ahead
The council and board meetings indicate a fluid situation, and certainly questions and concerns remain. The TELC in January released an abbreviated, summary version of the comments it received on the draft rules, and at that time there were 37 comments on the proposed “capped payout” and 60 on a proposal that would grade a tie in a parlay as a loss. There were myriad other comments or suggestions about the 20% tax rate, licensing and application processes, and how deposits and withdrawals will work.
Since then, Sports Handle has obtained a complete copy of the comments, which are 271 pages, as compared to the 18 summary pages provided by the TELC in January. Like the overview, commenters are not identified, as they were clearly whited out by hand on each comment.
In some states, when the comments are released, the names of the commenters are made public. Potential operators DraftKings, Caesars, and William Hill as well as industry groups iDEA Growth and the American Gaming Association are among those who identified themselves in their comments, as the companies used their names in text that was not redacted.
Major League Baseball, the NBA and PGA Tour are also identified. They wrote in to reiterate their support of several league-friendly rules, including the mandated use of “official league data” and the opportunity to prohibit certain wagers.
A second draft of proposed regulations is coming, according to chairperson Susan Lanigan. The TELC and its advisory council is expected to meet again in March, at which time the rules may be closer to adoption.
TN proposed regs frustrating to stakeholders
Those commenting were required to use an online form set up by the TELC, which stakeholders complained about as cumbersome during the process. The form only allowed commenters to discuss one topic at a time, and from the looks of the complete document of public comments, they often needed multiple forms to complete a single thought.
The complete comments paint a picture of frustration from stakeholders. Industry group iDEA wrote that the proposed regulations would “hamper” growth of the industry, called one rule “underdeveloped,” and said another would “undermine the effectiveness of regulators.”
One stakeholder referred to the “capped payout,” described in the proposed rules as putting an 85% cap on the payout of winnings, as “crippling,” while another called it a way to “limit market growth and legal operators’ ability to to give customers a compelling reason to move from the illegal market.” Â Yet another called the push-loss idea “anti-consumer.” The cap is not part of the law passed by Tennessee’s legislature and was added in the regulatory process.
Among the full comments, there were multiple ones about the requirement of placing 20% of a single day’s adjusted gross revenue into an escrow account. Comments suggest that this is an unreasonable requirement. One wrote, “this process does not contemplate the possibility that adjusted gross income on certain days could be negative.”
Marketing approval period must be shortened
Another issue that cropped up repeatedly is the 30-day approval period the TECL proposes for approving marketing campaigns. The time frame, according to multiple stakeholders, is unreasonable, as sports betting opportunities are based on real-time events that are ever evolving. As an example, if during March Madness a team gets hot from the three-point line, an operator may want to add in a unique three-point bet going forward. The 30-day approval period would not allow for this kind of flexibility.
The 30-day window is “entirely unworkable,” wrote a commenter. “Current advertising and marketing moves at a much quicker pace that is not conducive to pre-approval of any type. Online advertising and marketing must be nimble and capable of reacting to current events.”
Besides the comments from stakeholders, some comments were from potential bettors — and they drive home the point that bettors are seeking a fair and trustworthy market in which to place bets. Some examples:
- “You all are trying to make this a fixed thing like the lottery. You try to run sports gambling like the lottery and make it more beneficial to the house. Everyone will continue to do illegal betting or travel to neighboring states. I can be in Kentucky in 45 minutes. Once they approve sports betting, I’d have no problem driving to the border multiple times a week.”
- “Cancelling a parlay if 1 of the legs tied is absolutely crazy … Don’t be greedy. You’ll get your money.”
- “A push in a parlay makes the parlay a loss, which isn’t industry standard — why and thought this was a good idea( sic)?”
- “Calling a tie a loss is a disservice to bettors & TN would lose customers. (personally, I’d just continue to go to Tunica to prevent a ‘loss’ when a bet is merely a push.)
- “Grading a pushed parlay as a loss is an absolutely idiotic move.”
- “Don’t make ties lose a standard. It’s noncompetitive, looks silly, and the consumer in TN deserves better.”
"We were just flat out wrong," Hargrove on the proposed reg that stated a push in a parlay leg would result in the entire parlay being deemed a loss.
TELC just voted unanimously to remove that very bad rule for consumers.
cc @dan_back
— Brian Pempus (@brianpempus) February 18, 2020
At least that one rule will be gone from the next draft. The status of cap on payout — viewed as a more grave threat — is still up in the air.
On balance, potential stakeholders identified plenty of problems, best summed up in this comment: “this draft regulation is antithetical to sports betting’s core identity.”
To be continued.
