A new sportsbook operator, Wagr, came a step closer to receiving final approval to launch in Tennessee during a Sports Wagering Committee meeting of the Tennessee Education Lottery (TEL) on Nov. 17.
Once live, this will bring the total number of Tennessee online sportsbooks up to nine.
Wagr’s catch-22 insurance woes
Wagr was tasked with securing adequate insurance coverage before being permitted to operate in Tennessee. However, that requirement proved to be an impossible feat for the start-up company.
It managed to secure liability coverage from the biggest insurance broker in the country, but not for the full $10-$15 million Tennessee requires.
Why the need for insurance?
Proper insurance coverage is not only essential for the protection of operators, but it is crucial for the safety and privacy of players as well.
These rules ensure protection for bettors according to the terms of service agreed upon during registration. Insurance coverage also pertains to everything from cybersecurity to technology.
However, major insurance companies still view online gaming as a restricted class of business, severely limiting the number of insurers willing to offer coverage in the sector.
Tennessee statute requires operators to carry a certain amount of insurance in order to operate within the state. This task proved to be extremely difficult for a start-up like Wagr which didn’t have the same proven track record as larger operators.
Consequently, Wagr found itself on the sidelines in Tennessee.
As a fledgling company, Wagr’s pre-revenue reports don’t show enough income to qualify it for adequate insurance coverage. And securing insurance for an amount far beyond a brand’s short-term revenue projections is far from a simple task.
Wagr bargains with the Tennessee committee
Rather than waiting for a rejection, Wagr presented the committee with a proposal of its own. It hoped for a suitable compromise that would allow it to launch while ensuring it met all appropriate safety controls.
Mario Malavé and Eliana Eskinazi, co-founders of the start-up, outlined that their mission is to provide a social, safe, and inclusive experience for everyone involved. Specifically, they want to offer a comfortable environment where beginner sports bettors can flourish.
Their proposal requested that the committee accept an initial $5 million in liability coverage, which could be reevaluated after a short trial period.
The company isn’t planning to conduct a full launch right away. Instead, it will begin gathering data and testing the system first through a soft launch.
By doing so, it hopes to provide enough evidence of potential to qualify for additional coverage from insurers.
Wagr would open the app to 1,000 players during the initial month – a plan it’s eager to kick into gear as soon as it receives final approval.
The FDIC will insure player accounts as usual, and the app will offer point spread betting exclusively. In addition, it will feature some of the lowest betting limits in the industry.
The sportsbook will limit point spread bets to a $500 maximum, and each bettor has a $10,000 monthly wagering limit.
Wagr given approval for soft launch
Some committee members wondered whether they should be making an exception for Wagr since they will be passing their regulatory duties over to the Sports Wagering Advisory Council (SWAC) at the beginning of January.
Others, however, sought to expedite the eager operator’s progress with a compromise.
According to the current statute, operators must evaluate their exposure, liability, and reserve funding on a weekly basis. To do so, they provide regulators with a report regarding overall wagering activity and the total sum of player funds on hand.
Wagr’s initial evaluation process will work much the same way and will include weekly performance monitoring. Its insurer will then reassess Wagr’s needs and qualifications after the first 90 days of operation.
Ultimately, the committee gave Wagr approval to begin operating as soon as they clear a couple final hurdles.
Now that regulators better understand the limitations current rules impose on smaller operators, they’re open to making adjustments.
Wagr conundrum may lead to new regulations
Members are now considering the idea of introducing a tiered approach to policies in place of the current static ones.
In this new scenario, insurance requirements would be based off an operator’s total player accounts rather than on expected revenue.
A tiered approach would ideally give smaller companies and start-ups a fighting chance when compared against major operators.
The SWAC’s Rulemaking Committee convenes this Friday to discuss current operator insurance requirements and other ongoing adjustments to the state’s regulations.