Tennessee received $68 million in tax revenue from mobile sports betting operators in 2022, but the state’s regulator felt like it left money on the table.
In Tennessee, operators must have a 10% hold on gross revenue, according to state regulations. When they don’t, they’re given the option to either pay a $25,000 fine or a privilege tax payment equal to the difference of what they would have paid had they adhered to the hold and what they actually paid.
In 2022, Tennessee Action 24/7, Barstool Sportsbook, BetMGM, Betly, Caesars Sportsbook, DraftKings, SuperBook Sports, Wagr, and WynnBET missed the 10% hold mark, but opted for fines rather than paying the difference. The Sports Wagering Advisory Council (SWAC) calculated that it missed out on roughly $11 million in tax revenue because of the failure to hit the 10% hold across operators.
“That’s $11 million that 15% of it didn’t go to the municipalities spread out, 5% didn’t go into responsible gaming, and the other 80% didn’t go to our students for scholarships and other things,” said Billy Orgel, chairman of the SWAC.
The operators’ decision to accept the small fine was logical for their own bottom lines, but left SWAC members wondering what more could be done to maximize Tennessee’s potential tax revenue.
“Our responsibility is to the people of Tennessee,” Orgel said.
Expect the SWAC to seriously consider new penalties in the near future, as the council plans to meet again on March 1.
Possible changes coming
The Tennessee Sports Wagering Advisory Council says that Tennesseans wagered $3.8 BILLION dollars on sports in 2022. That's up 41 percent from the year before. The State of Tennessee makes $68 million dollars from that $3.8 billion spent. pic.twitter.com/zNISJTjYpl
— Justin McFarland (@ThisJustinTv) January 20, 2023
Legal sports betting went live in Tennessee on Nov. 1, 2020. Perhaps most concerning to SWAC members was that a few operators also failed to hit the hold in 2021.
“It’s gonna come up every year until we correct it,” SWAC council member John P. Valliant Jr. said at the group’s early February meeting.
The possibility of suspending an operator’s license was even discussed by the SWAC. A license suspension would almost certainly incentivize operators to either meet the hold condition or fork over the true-up payment.
Members of the SWAC seemed more inclined to hand out additional penalties to repeat offenders of the 10% hold rule rather than first-time rulebreakers. As it currently stands, taking the $25,000 fine is a no-brainer for operators.
“If I have a choice between paying $1 million or paying $25,000, I’m gonna take the 25 every time if nothing is gonna happen to me,” Valliant said.
Should the SWAC ramp up penalties for operators failing to hit the 10% hold, bettors may feel the impact. Operators raised concerns in 2021 that given stiff requirements in Tennessee, they might need to resort to offering worse odds when compared to other states, perhaps moving odds listed at -110 in other states to -115 or -120 in Tennessee to help them meet the hold requirement.
