As Tennessee’s Sports Wagering Advisory Council (SWAC) finalizes its regulatory takeover come 2022, a number of rules are set to change for sportsbooks.
The state’s minimum 10% hold requirement, however, doesn’t seem to be going away anytime soon.
10% hold stands as SWAC takes over
The SWAC’s Rulemaking Committee – comprised of trio Tom Lee, Samuel Lee and Kandace Stewart – met on Friday, Nov. 19 to discuss their latest proposed adjustments to Tennessee sports betting’s emergency regulations.
New executive director Mary Beth Thomas was also in attendance. Since coming on board Nov. 1, she has significantly contributed to the rulemaking process.
The meeting’s primary discussion was once again Tennessee’s unique 10% hold requirement, a topic that originally came to light during October’s public comment period.
Sportsbooks eager for options under new governing body
Tennessee operators are required to retain a minimum of 10% of their annual gross revenue according to the original statute. To accomplish this, they must ultimately return no more than 90% of overall wagers back to players.
When a major wagering event falls in the favor of bettors, sportsbooks often struggle to meet minimum requirements.
In response to concern, the Rulemaking Committee first suggested an amendment to impose fines on a quarterly basis rather than annually. They then took a slightly different stance after public requests proposed the hold be reduced or eliminated altogether.
This time, the emergency rules suggest that Tennessee maintain its 10% hold as well as its annual fine assessment.
In this scenario, operators would report their previous year’s hold before Jan. 15 or else be held in violation of the rule.
Those that don’t meet the minimum 10% hold can then accept the violation and pay a fine of up to $25,000. Alternatively, they can avoid the fine and violation by paying a true up privilege tax equal to the amount they would have paid by complying with the regulation.
The committee sees this as a fair compromise that allows licensees to avoid a blemish on their permanent record.
Hold requirements guarantee state revenue
Properly regulating this budding industry isn’t the SWAC’s only role. The council is also responsible for ensuring that sports betting generates adequate income for the state.
Rulemaking Committee chair Tom Lee noted:
“While not a large percentage of the state budget, it is nevertheless an essential and indispensable element of the act. We think it is important to ensure – at least, for now – that we continue this hold in place so that we can ensure revenue stability to the state through this new source.”
The state calculates hold based off adjusted gross income and requires operators to pay a 20% privilege tax on annual AGI. Because of this, a minimum hold requirement guarantees the state a certain level of revenue every year.
Benefits and issues of a minimum hold
The committee remains cautious of eliminating the hold entirely. Tom Lee cited the potential pitfalls of an industry without the requirement.
“We’re aware of what the market tends to push operators toward. And we’re also aware that without a hold, several things could happen. One is, a kind of predatory effect could take hold in the market where a company determined to increase market share could pay out, frankly, more than it takes in, if it could afford to do that for an extended period of time.”
Once approved by the full SWAC council, final emergency rules will advance to the Attorney General’s office for review before becoming valid for 180 days.
The permanent rulemaking process will then commence following Thanksgiving.