Changes are likely coming to Tennessee’s sports betting market.
State legislators, who rapidly pushed through the end of the legislative session this week due to political controversies, passed SB 475 on Friday. The bill changes the state’s mobile sports betting tax system from a 20% tax of adjusted gross revenue to a 1.85% tax on an operator’s handle.
The bill also removes the state’s controversial mandatory 10% hold rule, which sports betting operators were skirting by paying a minuscule fine when failing to meet the threshold. The bill “prohibits licensees from deducting payouts to bettors or promotional wagers or payouts from total gross wagers.”
The handle tax will be the first of its kind nationally, assuming Gov. Bill Lee signs SB 475 into law.
Additionally, language in the bill removes the state’s official league data mandate. SuperBook Sports and Betly had previously argued to the Sports Wagering Advisory Council that paying Genius Sports for official NFL league data was commercially unreasonable. The SWAC punted the decision to the legislature, which opted to remove the requirement.
Crunching the numbers
The change in tax determination is designed to increase revenue for state government, but it’s unclear if that will become a reality with the handle tax.
In the first three months of 2023, Tennessee received $22.4 million in tax revenue from mobile sportsbooks. If the 1.85% handle tax were in place, the state would instead have received $20.9 million.
So far in fiscal year 2023, which began last July 1, Tennessee has received $65 million in tax revenue from sports betting. That number would have been $58.1 million when using the 1.85% handle tax, nearly $7 million less.
It’s possible under the new system that the state could bring in less tax revenue than previous years. It’s also worth noting, however, that each of Tennessee’s top five monthly handles have come in the 2023 fiscal year.
If operators generate massive handles moving forward, the state could receive significant tax revenue in future years. If handle dips, Tennessee may miss out on tax revenue under this new system.
Before amendments, SB 475 would have taxed handle at 2%, for slightly higher tax revenue generation.
Running all-time post-PASPA #SportsBetting numbers thru Tennessee on 4/18:
GGR Win Rate: 7.8537%
AGR WR: 6.737%
Known Deductions: $2,408,259,173
— Chris Altruda (@AlTruda73) April 18, 2023
The official league data mandate being removed is a notable change to Tennessee sports betting regulations. Smaller operators may opt to use unofficial data sources as a cost-saving measure.
The legislation also includes changes to licensing rules. Vendors would only need to register for licenses every three years, rather than annually. The fee would cost $150,000, with payments being issued every year.
For operators, annual licensing renewal fees would cost $750,000 for operators taking in more than $100 million in gross wagers in the prior year. Operators with a handle below $100 million would pay $375,000 for a license renewal.
On a less important note, the bill includes language to drop “Advisory” from SWAC’s name, changing it to the Sports Wagering Council.
Chris Altruda contributed to this report.