Finalized TN Betting Regulations Include Unprecedented 10% Hold Requirement

Posted on April 15, 2020 - Last Updated on April 16, 2020

In a matter of seconds, the Tennessee Lottery Board finalized sports betting regulations and license application forms during a conference call on Wednesday afternoon. Also in a matter of seconds, the board set those future operators up to fail.

Against recommendations from its own Sports Betting Advisory Council and the industry as a whole, it established a fixed payout cap of 90% of handle. That’s a horrible decision that will lead to a huge competitive disadvantage for legal sportsbooks in the state.

Sports betting application process should start next week

About nine months after the state legalized sports betting, the TN Lottery Board voted to finalize the rules. In the same motion, the board also approved forms for the various tiers of sports betting licenses.

The vote was unanimous after a few minutes of review and commentary. The newly approved regulations should be available online Friday. The application forms should be available by next week. It’s unclear how long it will take the Board to review those applications. By law, they have 90 days to review each one.

The board hopes to have legal sportsbooks live by the time major North American professional sports return to action. That may be an optimistic hope, however, as the PGA plans to resume in June. Nonetheless, a summer launch seems like a reasonable expectation at this point.

Unfortunately, what should have been an exciting day for Tennessee’s legal gambling landscape soured quickly.

Why the 90% fixed payout cap for legal operators is such a bad idea

To appropriately modify a Shakespearan stanza for this situation, “How do I hate thee? Let me count the ways!” It’s appropriate usage because this is a mistake of historical proportions that could have easily been avoided.

This situation has clear losers and winners. The winners are future legal sportsbooks in states that neighbor TN, illegal bookies in the state, and offshore websites that Tennessee residents access. Everyone else is a loser in this situation.

The state treasury loses out because instead of protecting the opportunity to collect tax revenue, this will actually put that at risk. In order to tax handle, the sportsbooks have to actually take bets from customers.

The Board itself is worse off for having made this decision because it ignored the recommendations that it received. More than half of the council voiced opposition to any fixed payout cap at all, as recently as March 10. That included Jennifer Roberts, who the board hired to advise it on these exact matters. It should go without saying that paying someone to advise you on a matter and then ignoring that advice is questionable at best.

The council members compromised at their last meeting, recommending a payout cap of 95%. It’s uncertain why the board chose to eschew that recommendation, but the legal landscape of sports betting in TN is now worse off for it.

That landscape loses out because some of the biggest and most experienced sportsbook operators in the country could decide to punt on TN altogether. If that ends up being the case, TN bettors will have few quality options on the legal market. Recall the Eilers and Krejcik report that said a proposed 85% mandate could potentially kill the TN sports betting app industry before it even started.

Expect shorter odds and fewer markets on TN betting apps?

The biggest losers in this situation are TN bettors. Not only may they face a limited choice in sportsbook brands, but there will also likely be even more limited options on wagers to place on those apps.

Most operators will compensate for having to reserve at least 10% of their handle by shortening odds and limiting the markets they offer. They will prioritize markets with low payouts like parlays and futures. At the same time, they are likely to offer similar odds on both sides of moneyline markets frequently.

Since the product will be inferior, bettors might go out of state or use illegal bookies or offshore channels. That could rob bettors of the consumer protections that regulated markets afford them. Additionally, even TN residents who don’t bet on sports will lose out on the benefits of the tax revenue.

In fairness, the board did stress it plans to re-evaluate after the first year of legal wagering. Hopefully, at that juncture, it will see its error and repeal this part of the regulations altogether. Until then, the board potentially ruined what should have been a great piece of news for gamblers in the state.

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Derek Helling

Derek Helling is a freelance journalist who resides in Kansas City, Mo. He is a 2013 graduate of the University of Iowa and covers the intersections of sports with business and the law.

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