When the members of Tennessee’s Sports Wagering Advisory Council (SWAC) — set to become the state’s sports betting regulator in January — walk into their meeting Tuesday to discuss proposed rules, there will be no doubt: Every stakeholder who offered public comment on the draft rules unequivocally wants the SWAC to do away with Tennessee’s controversial 10% hold rule. The hold is amount of money an operator keeps after a wager is settled.
The rule is the brainchild of the Tennessee Education Lottery Corp. (TELC), which is the current regulator. It was implemented prior to the November 2020 launch of legal wagering, much to the chagrin of operators, with the idea that it would result in higher revenue to the state. That has proven untrue, and the net result has been worse odds for bettors, less tax revenue for the state, and an opportunity for the black market to continue to thrive in the U.S.’s first mobile-only wagering jurisdiction.
“Reaching the 10% number required by regulation is only achievable at the detriment of Tennessee residents,” wrote Lou Fracogna, senior counsel, corporate compliance officer for Churchill Downs’ TwinSpires digital platform. “Those that choose to engage in legalized sports wagering will see reduced offerings in lower hold markets and/or worsened odds across the board. Meanwhile, illegal operators will be able to offer more markets and better odds. Without a capped payout, the State of Tennessee benefits from a legal and competitive product with robust responsible gaming and anti-fraud tools.”
Proof the cap doesn’t result in more tax dollars
Frascogna went on to share that, according to the UNLV Center for Gaming Research, the average hold in Las Vegas from 1984-2020 was 5.13%, while the highest was 8%.
In addition, the state’s 20% tax rate does not translate into a higher spend or tax revenue, as DraftKings shared in its letter to the SWAC:
BetMGM also shared that lower average holds in similar states have resulted in higher gross gaming revenue:
DraftKings and BetMGM, along with FanDuel and Action Tennessee 24/7, were the first four platforms to go live in Tennessee last year. Since then, four others have joined the fray. But whether an operator is live in Tennessee or only has plans to be, the reaction to the 10% hold is visceral.
A representative from Caesars called the cap “profoundly anti-consumer” and suggested that “over time, it will limit the size of the legal sports betting market in Tennessee.” Meanwhile, FanDuel government affairs and product counsel vice president Cory Fox wrote that no other U.S. jurisdiction has launched “a regime with such an onerous restriction on payout,” and went on to cite examples of Europeans countries that had “stunted growth” as a result of similar caps.
Penn National Gaming’s VP for Compliance, Rhea Loney, wrote, “It forces licensees to make business decisions that are adverse to a consumer-friendly marketplace.”
She went on to explain that operators must increase the vig and decrease payouts to meet the requirement.
Bettor has his say, too
Tennessee consumer Matt Calhoun may have said it best when he wrote:
If I, as a consumer, am required to win even more bets just to break even, why would I want to place a bet in Tennessee’s legal sportsbooks? [TELC Director] Rebecca Hargrove made a comment during the original rule making period for TN that offshore/illegal books are never going to disappear. Of course, not with this required fixed cap. If people can win more money on the same exact bet away from Tennessee’s legalized sportsbooks, they absolutely will gravitate towards whatever offers them the best odds.
Calhoun went to criticize the TELC’s mandated use of official league data. Tennessee is one of only a handful of states, along with Illinois and Michigan, that require operators to purchase data to settle wagers from “official sources.” Conceptually, lawmakers and regulators say they believe such data helps to protect the integrity of the game — and the wager.
“I would like to add one more thing regarding integrity fees and what has happened with all of the cheating in MLB,” Calhoun wrote. “We should not be giving these leagues any extra money in the future based on these scandals. In 2017, I had a Yankees World Series sports bet that I lost because of the Astros cheating against the Yankees in the ALCS. Because of all of this, there’s not going to be any refund to my sports bet even though it’s been admitted that the Astros cheated. So if I am not going to be made whole because of their cheating, why should we give them any type of money/fee for their ‘integrity?'”
Top 10 #SportsBetting Handle since May 2018 (Sept in CAPS):
1 #NEWJERSEY: $18.992B
2 #NEVADA: $17.57B
3 #PENNSYLVANIA: $9.35B
4 #Illinois: $5.9B
5 #INDIANA: $4.65B
6 #COLORADO: $3.6B
7 #MICHIGAN: $2.58B
8 #IOWA: $1.994B
9 #VIRGINIA: $1.965B
10 #Tennessee: $1.7B#GamblingTwitter— Chris Altruda (@AlTruda73) November 1, 2021
Operators would likely agree that the official league data mandate is another potentially higher expense they must incur and does not allow them to shop around for the best price. But it’s not a requirement most operators have chosen to push back on, focusing instead on the removal of the cap.
Among the comments — nine from operators, two from industry organizations, and one from a consumer — the cap was the key component, but stakeholders also raised questions about a Tennessee-specific responsible-gaming hotline, auditing and reporting guidelines, reserve funds, simplifying the license renewal process, and other issues.
The SWAC is set to meet Tuesday at 11 a.m. local time to discuss the comments. The SWAC’s rule-making committee met to discuss the proposed rules Friday, but Tuesday’s meeting will be the council’s first full meeting led by new Executive Director Mary Kay Thomas.
