Tennessee Sports Betting Hold Requirement

Understanding Tennessee's 10% Sports Betting Hold Requirement

Among jurisdictions with legal sports betting, Tennessee is unique. There are no brick-and-mortar sportsbooks in the state. Tennessee also mandates that its licensed operators only pay out a certain percentage of the money they handle.

So far, Tennessee is the only jurisdiction where both of those things are true.

The latter of those two unique qualities has been much more controversial than the former. It’s still too early to tell whether criticisms of the 10% hold requirement in Tennessee are legitimate.

The market and regulators will decide the fate of the state’s hold requirement. For bettors in Tennessee, it’s a good idea to understand what it is, how it might impact them, and what it could mean for sportsbooks in the future.

What is hold?

Hold is the term for the difference between handle and payouts in the sports betting industry. Handle is the money that a sportsbook takes in via its customers placing bets. Sportsbooks keep a percentage of money for every dollar wagered, which is the hold.

In the sports betting industry, the percentage of handle that sportsbooks hold can vary greatly. An example of something that can affect this is when an upset happens in a sporting event that a lot of people bet on.

The higher the percentage of handle that sportsbooks hold, the better it is for them.

One of the reasons why the Tennessee mandate received criticism is that sportsbooks operating in other markets normally hold less than 10%. The numbers support that argument.

Requiring sportsbooks to hold more than the national average could lead to non-competitive lines for customers, and ultimately make the offshore market more appealing than the legal one.

What is the average hold around the nation in other legal markets?

The greatest source of data to scrutinize in this regard is from Nevada. That’s because legal sportsbooks have operated there for decades.

On an annual basis, hold for Nevada sportsbooks tends to sit around 5%. Of course, there are a few key differences in the Nevada and Tennessee markets.

For one thing, Nevada’s retail sportsbooks are a staple of that industry. It’s hard to know exactly how NV sportsbooks would perform if the state only allowed online wagering.

The state protects retail sportsbook’s interests by requiring people who wish to bet online to register for accounts in-person at the brick-and-mortar sportsbooks. There’s another key point of variation.

Nationally, a rough average for hold in other legalized markets sits at about 7%. While some states trend higher, like Arkansas and Delaware, most track lower.

Again, these states have retail sports wagering, so it is not truly an apples-to-apples comparison.

However, none of these states have a mandated hold requirement, and the lower hold on average across the nation is what has drawn criticism of Tennessee’s requirement.

Why did Tennessee institute a hold requirement?

As stated above, Tennessee requires its licensees to hold 10% of their handle on an annual basis. So, sportsbook operators there can only payout 90% of the dollars wagered in a year’s time.

Despite initial criticism from bettors and the industry, the Tennessee Education Lottery set that limit in its initial regulations.

It’s important to note that the mandate is not in the actual statute set by the state legislature, but is in the rules put in place by the TEL.

The TEL has the authority to do so under the legislature’s oversight, however. Additionally, Tennessee officials like the state’s lieutenant governor supported it at the time.

The reasoning behind the requirement is that it would guarantee the state gets a decent amount of tax revenue from the industry. Additionally, it wanted to limit the ability of big gambling companies to enter the market and operate at a loss to gain the biggest market share.

Regulators have said they will revisit the mandate after the first year, depending on how it impacts the market.

Potential impacts on the market

How well bettors in the state do as a group could be a big factor on how this mandate will impact the market. If sportsbooks do well, they might never have to think about compliance with this regulation.

If operators sit with a hold percentage closer to that Nevada average, however, they may have to take measures to get back into compliance. They would have a few options, but most would be some form of manipulating the markets to increase their vig.

Vig is a sportsbook’s interest in a betting market. Think of it as the price you pay for access to the sportsbook’s product. Sportsbooks can increase vig by:

  • Lengthening odds on longshot bets to attract more dollars on them
  • Evening the odds on both sides of a moneyline market so the book wins regardless of the outcome

That strategy could backfire, however. If the odds aren’t competitive, Tennessee bettors will likely bet with another operator. Moreover, there’s the potential that bettors in Tennessee could opt to wager with illegal channels instead of regulated ones if this becomes common practice.

Tennessee sportsbooks also might promote parlays because sportsbooks’ win rates are much higher with those bets. Additionally, they could increase their advertising or offer more promotions to customers to entice them to wager more.

Those promos could figure into the numbers for Tennessee sportsbooks heavily. However, just like with the impacts on the market, there is a lot of uncertainty as to how the lottery will enforce this part of the rules.

How will it be enforced?

Enforcement is something the lottery is still working on finalizing. What is certain, however, is that the lottery won’t start measuring compliance until Jan. 1, 2021.

Operators must demonstrate compliance at the end of each calendar year. Therefore, if a sportsbook isn’t over that 10% threshold in June of a particular year, it would, in theory, have the rest of the year to try to get there.

It’s uncertain what the lottery will do for operators found in violation right now. Possible penalties could include fines and suspensions or revocations of licenses. It’s not clear whether there will be a progressive scale for penalties or not.

Everyone should also note that the lottery’s board of governors committed to reevaluating the hold mandate after its first year of enforcement. So, in early 2022, the lottery could, theoretically, reduce the percentage or even repeal the mandate altogether.

For the time being, Tennessee sportsbook operators need to watch their numbers in this regard. If this does become a permanent fixture of the sports betting industry in the state, it will make the market an interesting one to watch.