As the Tennessee Sports Betting Council pours over comments received on its draft regulations, one particular area has gotten a lot of attention. That item is a 15% sportsbook hold requirement.
The regulation caps annual payout for future legal sportsbooks in Tennessee to 85% of handle. Most of the sports betting industry will tell you this a terrible idea. There are four significant reasons why.
Four reasons the sportsbook hold requirement is terrible
Several voices have chimed in on this tenet of the regulations. That includes Thomas Lee, a member of the TSBC, as well as an in-depth study.
The study was performed by Eilers and Krejcik, a boutique research firm for the gambling industry. The non-profit organization iDEA Growth commissioned the study.
The study presents three reasons mandating a 15% hold is bad. There is a fourth that the study doesn’t include, however. In no particular order, the reasons are as follows.
1. It hurts the quality of the products that legal sportsbooks can offer
Sportsbooks’ primary products are odds and payouts. If they have to hold back 15% of handle, both products will be worse for it.
The study says that sportsbooks will offer substandard odds because of the mandate. It will affect the payouts as well, as the books will need to avoid large ones to stay in compliance.
Those effects will be more pronounced for wagers on teams of local interest because they are likely to see the most action. Bets on Memphis Grizzlies games, for example, will suffer the most.
The inferior quality extends beyond the quality of the odds and payouts, however. It will limit the kinds of bets available as well.
2. The mandate will cut down on in-game bets and parlay options
Keeping 15% of handle on hand will force sportsbook operators to do one of two things, if not a mixture of both: cut back on markets and limit the amount bettors can wager. Because of that, the books will have artificially-placed thresholds.
That means when a market on a certain event reaches that threshold, books have to close it. Additionally, the books will reject bets from certain customers at the set level.
That’s a bad situation for the books and the customers. Books are likely to lose bettors’ business for a long time if not in perpetuity if they reject bets.
At the same time, it ruins the enjoyment for customers when they can’t bet on the games they want to. The frustration will mount because of the next item on the list.
3. Customers will tire of sportsbooks’ constant high-end marketing
People who have ever had aggressive salespeople hound them can identify with the discomfort of that situation. Sometimes that’s most annoying when the sales pitches include multiple “add-on” options like warranty plans for electronics.
That’s the undesirable position this mandate will force legal sportsbooks in Tennessee into, however. For example, when a bettor logs on to place a $10 bet on a Tennessee Titans game, the user will be inundated with pop-ups trying to convince the bettor to place a more lucrative wager.
On top of that, sportsbooks may only allow easy access to bets that result in a higher win percentage. One of the hard and fast rules for legal sports betting is that the more convenient it is, the more likely people will do it and do it often.
Because of that limited convenience, consumers may decide it isn’t worth the effort. The end-user may not be the only party to arrive at that conclusion, however.
4. Sportsbook operators may decide to skip the Volunteer State altogether
Because of the regulatory difficulties, legal operators may decide the cost of doing business in Tennessee isn’t justified. Just because operators can get licenses to accept wagers doesn’t mean they have to.
Like any other business, these companies consider the return on investment when evaluating a new market. If this mandate survives into the final version of the state’s regulations, many operators might decide it’s simply not worth it.
Fortunately, the council can address all these problems with one simple move: remove the sportsbook hold requirement from the regulations. That would be a tremendous step toward creating a desirable market for everyone. This is one conclusion that everyone involved should jump to.