The Tennessee Education Lottery Corporation Board of Directors in a telephone conference on Wednesday unanimously approved final TN sports betting rules, and in doing so became the first jurisdiction in the U.S. to stipulate how much money legal sportsbook operators may pay out overall on total bets taken. The board has been mulling this provision for months and finally agreed on a 90% cap, or put another way, sportsbooks must “hold” or keep at least 10% of all wagers annually. The concern is the downstream impact on bettors and impact on the way sportsbooks typically do business.
The only other jurisdiction to even consider a payout cap was Washington, D.C., where the D.C. Lottery was pushing for an 80% cap, but the D.C. Council didn’t include any such cap in the sports betting law.
“A year ago, many looked to have Tennessee be a model for a mobile-only state and take best practices to craft a market,” said Brendan Bussmann of gaming consulting firm Global Market Advisors. “Based on some of the provisions today and the wait-and-see approach, it is turning into a model of how not to craft an ideal market that maximizes revenue and provides the best opportunities for customers, operators and the state.”
Board says cap will be revisited a year into live sports betting
Tennessee Education Lottery Corporation Board of Directors (TELC) Chairman Susan Lanigan said the board spent significant time discussing the cap and batted around various numbers, from 90-95%. All of those were less rigid than the initial 85% number that was proposed in November. Lanigan also said the cap would be revisited in a year.
During the public-comment period on the proposed rules, the TEL got 37 comments from stakeholders about the cap, including one that read:
85% payout percentage would drive those to illegal market and outside of all U.S. Markets (refer to Eilers report)
For operators, the cap will likely translate into inferior pricing for some markets than what’s offered in a jurisdiction with no cap, or at illegal offshore sportsbooks. In addition, some potential wagerers, particularly more serious bettors, may simply bypass the market altogether and continue to bet through illegal channels. In essence, the cap may well accomplish exactly the opposite of what lawmaker and operators alike want from legal sports betting — allow the black market to thrive, and also depress legal sports betting participation, ultimately reducing the operator taxable revenue tabbed to benefit in-state education funds.
Looks like the Tennessee sports betting scene is gonna be about as nationally relevant as their football program
— Matt Lindeman (@lindetrain) April 15, 2020
Exactly this. Expect the TN market to offer -110 on most frontline wagers like NFL spreads, and pull the wool over via less easily calculated markets. Could also see the dreaded one way props.
My advice: Compare pricing to other markets. Force TN to change the law by not buying https://t.co/VNXYnviWuG
— Robert DellaFave (@RobertDellaFave) April 15, 2020
In Tennessee, the 20% tax rate is already higher than in most other jurisdictions, which generally range from 6.75% to 15%.
Sports bets could be placed as early as July
According to a UNLV Center for Gaming Research report, Nevada sportsbooks had an average hold of 4.93% between 1984-2019. In New Jersey, the second-largest market now offering full-fledged live sports betting after the Professional and Amateur Sports Protection Act was overturned in May 2018, sportsbooks had a hold of just over 6% in 2019.
“Rocky Top will not always be a sports bettor’s home to me” after this, Bussmann said. “The 10% cap highlights how risk-averse lotteries will dilute the opportunities for a quality sports betting market.”
The other big news at the meeting, which was held as a telephone conference call, is that with the approval of the regulations, the TELC expects that operators should be able to go live with sports betting in Tennessee as early as July, assuming there is anything to bet on. U.S. professional sports are currently shut down due to the COVID-19 pandemic.
Once the rules were approved via voice vote, Lanigan said, “We will post the rules by the end of the week, and then 90 days from when the first application is filed” will move forward. Sports betting became legal in Tennessee on July 1, 2019, when Governor Bill Lee let a deadline to sign or veto the legislation pass without his signature.
Officials said the final, approved sports betting rules will be published on the TN Lottery website by the end of this week.
Amid COVID-19 pandemic, lottery is suffering
Tennessee became the first state to legalize mobile-only sports betting. The Lottery is the regulator and there is no cap on the number of licenses permitted. The annual licensure fee for operators, separate from 20% tax rate, is $750,000 annually.
Tennessee was also the first state to mandate the use of “official league data” by sportsbooks. In the last year, Illinois and Michigan also passed legislation with the mandate, and it’s likely Virginia will, too, when lawmakers go back for an extended session next week.
All in all, operators may find it tough to do business in Tennessee, and bettors in many parts of the state may explore other nearby options. Tennessee has eight border states, and two of its biggest cities sit right on a shared border.
Sports betting is already legal in neighboring Arkansas and Mississippi, though in both cases, only at retail sportsbooks. But Virginia should have legal sports betting, including statewide mobile, by the end of this month, and lawmakers in Georgia, Kentucky, and Missouri have been pondering and pushing for legal sports betting — with mobile components — in their states.
Wednesday’s meeting started with the kind of misfires that are happening across the country as government and employees get used to working remotely. The first eight minutes of the 50-minute meeting were dedicated to getting board members the right information with which to dial in and be able to talk.
Once that situation was worked out, Vice Chairman William Carver gave a brief overview of how sports betting has evolved in Tennessee, and Tennessee Lottery President and CEO Rebecca Hargrove offered up some sobering Lottery numbers — with businesses across the country shuttered, the Lottery’s gross sales were off by $26 million in March as compared to February, which is a decrease of 21%. She went on to say that it appears gross sales will be off “$20 million from our lowest-forecasted number, and $40 million as compared to last year.”
