Tennessee is on the cusp of putting the finishing touches on an online-only sports betting bill, which will become law in a matter of days after the governor lets it go on the books without his signature.
The state is eyeing a sports betting industry that will generate $254 mm in annual, taxable gaming revenue. That comes from a projection that the state’s 21-and-over population of 4.95 mm and about 3.52 mm of-age tourists will generate, on average, $30 in gross gaming revenue annually.
A state fiscal note explains the math: (4,959,180 + 3,528,750) x $30 = $254,637,900.
Tennessee got the $30 annual GGR per adult from a 2017 study commissioned by the U.S. commercial casino industry, which at the time was engaged in a public relations campaign in favor of the U.S. Supreme Court striking down the federal sports betting prohibition. The high court did so in May 2018.
Three-and-a-half million out-of-state sports bettors might sound like a lot, but it’s only 3% of the state’s annual tourism figure. According to the TN Department of Tourist Development, the Volunteer State saw 116.1 mm visitors in FY 17-18. Tennessee is in the top 10 among U.S. states in terms of tourism.
Still, Tennessee is expecting a sizable portion of its sports betting market to come from non-Tennessee residents. That will incentivize the state to market its sports betting, to be regulated by the Tennessee Lottery, to visitors. According to a fiscal note for Tennessee sports betting bill, the state has only “moderate” access to high-speed internet, which caused its projection for gross gaming revenue from its residents to be lower than what Oxford Economics projected in the aforementioned industry study.
Effectively, Tennessee thinks it will make up the difference with sports betting by tourists.
Neighboring states
The state that shares the largest border with Tennessee is Kentucky, which was unsuccessful at legalizing both retail and online/mobile sports wagering earlier this year. Kentucky is a horse-betting state, with many state residents already familiar with online/mobile betting on horse races. That will help Tennessee.
It’s worth noting that the state’s sports betting projection didn’t consider increased tourism explicitly for sports betting. There could be material visitation for the primary purpose of sports wagering, especially from Kentucky. The TN projection considered the appetite for sports betting among its existing tourist pool.
Tennessee could also benefit from the untapped Georgia gambling market. The Peach State doesn’t have any casinos, but the drive from Atlanta to Chattanooga, Tennessee is less than two hours, not a bad drive for a weekend road trip to visit the Volunteer State and engage in some legal sports betting.
Alabama, which is believed to have one of the largest underground gambling markets for college football, is directly south of Tennessee and could feed the Volunteer State some bettors. Tuscaloosa, Alabama to Nashville is also a relatively brisk three-and-half-hour road trip. The home of Alabama football is just 2.5 hours to the state line. Perhaps the small town of Ardmore will eventually become a mini-hub for Alabama residents with an appetite for sports betting and a desire to avoid illicit bookies and offshore sites.
Tennessee will have some challenges to the west. Memphis sits adjacent to the state lines of Arkansas and Mississippi, both of which have legalized brick-and-mortar sports betting. The lack of online/mobile in those states will dim their respective markets and give Tennessee a built-in advantage. There will soon be a sportsbook just outside Memphis in West Memphis, Arkansas. Tunica, Mississippi is also a short 50-minute drive from Memphis. Tennessee could siphon some sports betting dollars away from Mississippi, which could in turn force Mississippi’s hand on authorizing online/mobile next session.
Missouri to the northwest is currently considering sports wagering. The state has a casino right on the TN-MO line.
New Jersey tourism
Like TN, the state of New Jersey welcomes more than 100 mm tourists each year. It’s not known how many Garden State tourists are there for sports betting. With that said, it was stated at a recent New York sports betting hearing that a quarter of NJ sports betting activity comes from New York residents.
With a piece of data like that, it does not seem unrealistic for TN to expect more than 40% of its sports betting market will be generated from visitors coming from across the country.
In 2018, which included six months of NJ sports betting, tourist spending on “lodging” grew 4.6% compared to 2017, the largest gain for the state in that category since casinos began closing in 2013, according to state data. NJ includes gaming spend by tourists in the lodging category. Two new casinos opened in Atlantic City in June of last year, properties that sought to capitalize on the sports betting boom. There’s no data on sports betting spend by all tourists to NJ, but gaming was indisputably a factor in a solid 2018 for NJ’s tourism industry.
Much has been said about Pennsylvanians heading over into NJ to gamble on sports. The Philadelphia market didn’t see its first legal sportsbook open until late last year, and there’s still no state-of-the-art online betting option in Pennsylvania (expected in a matter of day or weeks). So, this begs the question: What impact did this situation have on tourist spending in NJ counties that border the Philly area?
In 2018, four NJ counties saw double-digit growth in visitation, significantly higher than the state average of +7.4%. They were the following:
- Atlantic County (home to AC): +14.9%
- Camden County: +13.9%
- Salem County: +11.4%
- Gloucester County: +10.7%
Camden, Salem, and Gloucester all sit outside the Philadelphia metro area. Burlington County, which is further north than the aforementioned counties but still is outside Philly, also had visitation growth (+8.1%) that outpaced the state average. NJ’s shore counties gather the bulk of the tourism volume, but their growth in 2018 was significantly less pronounced than the PA-border counties.
It’s worth noting that Salem County also sits outside the state of Delaware, a state that has legal sportsbooks but no online betting. NJ is surely taking some of DE’s sports betting dollars.
Hudson and Bergen counties, which sit outside NYC, saw 9.5% and 8.5% growth last year, respectively.
Another county with interesting results in 2018 was Warren County, which sits less than a 20-minute drive from Bethlehem, PA, home to the Sands Casino Resort. That casino doesn’t have sports betting yet, and it’s a safe bet to assume gamblers in the Allentown area are eager for it, making the short drive into NJ attractive. Warren County had 9.5% visitation growth in 2018.
Last year was a great year overall for NJ tourism (no county saw a decline), but the gains were more pronounced in the counties near Philly/PA and NYC. Assessing the true impact of sports betting on NJ tourism is premature, as it was only available for half of last year and other economic factors obviously play a role in tourism gains.
NJ tourism figures from 2019 will something to keep an eye out for.
Remote registration is paramount
With no brick-and-mortar betting locations, Tennessee will of course need residents and visitors to register remotely for an online sports betting account. Fortunately for the state’s sports betting industry, the legislation allows for bettors to enjoy the convenience of setting up their accounts over the internet.
That’s in contrast to a state like Iowa, which will require in-person online account registration until Jan. 1, 2021. It’s not a devastating blow to Iowa’s market, but it will slow initial growth and allow offshore sports gambling sites to have an advantage while sports betting goes more mainstream.
Thanks to the tourist gambling projection, Tennessee will be incentivized to see guests to sign up for accounts as soon as possible upon entering the state. While there will be no retail sports wagering locations, there is a natural venue for making people aware of legal sports wagering sooner rather than later.
Welcome to…Tennessee sports betting?
The state’s Welcome Centers, located around its borders, could be a viable place to allow the state lottery to have some sort of messaging to inform visitors that Tennessee has legal and regulated platforms. It might not be the best idea to allow licensed operators to fill the Welcome Centers with marketing, but a simple state-sponsored message would work (the state gets 20% of the sports betting revenue).
