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Tennessee Lottery Finalizes Sports Betting Regulations

The Tennessee Education Lottery (TEL) Board of Directors has approved the rules governing sports betting, paving the way for operators to begin applying for licenses. The TEL expects to begin accepting licensing applications for Tennessee sports betting next week.

While some states put a cap on the number of licenses that can be issued – equal to the number of land-based casinos, for instance – Tennessee has no maximum. Naturally, operators must meet specific “suitability requirements.”

Once an operator’s application has been marked complete, the TEL Board has 90 days to make a decision on the license.

“We will continue to work with all parties involved to protect the consumer, promote fairness in sports and regulate this new Tennessee industry that provides critical education funds to the state,” said TEL President and CEO Rebecca Hargrove in the April 15th press release.

State gets sizable cut

Tennessee’s sports betting industry will be internet-only, the first state to go that route. It makes sense, considering the state does not have casinos.

The price sports wagering operators will have to pay for the privilege to do business in Tennessee is fairly steep. The licensing fee is $750,000 and the tax rate is 20%. That fee is not bad at all compared to some; Pennsylvania charges its operators $10 million, while Illinois’s fee for internet-only sportsbooks is an astronomical $20 million. At the other extreme, Iowa’s licensing fee is only $45,000.

Fortunately, there is no integrity fee in the regulations. Sports leagues have continually tried to get states to make sportsbooks pay them a small percentage of their revenue, disguised as a way to help the leagues police the “integrity of the game,” but once again, those efforts have failed.

Where leagues were able to get their way, though, was with official league data. Tennessee sportsbooks will be required to use official league stats for in-play betting, provided they are priced at “commercially reasonable” rates.

Industry bristles at obligatory hold

The most controversial rule is the mandatory hold. Sportsbook “hold” is gross revenue divided by total dollars wagered, effectively the bookmaker’s profit margin. From 1984 to 2019, Nevada sportsbooks averaged a hold of about 5%, according to the UNLV Center for Gaming Research. New Jersey sportsbooks had a 6% hold last year.

The TEL is requiring state sportsbooks to maintain at least a 10% hold. This is actually down from 15% in November. No other state has a mandate like this. Washington, D.C. considered a 20% hold requirement, but never put it in the final law.

This will potentially be a problem for customers, as it will mean that Tennessee sportsbooks will have no choice but to provide worse prices than operators in other jurisdictions. Experts calculate that a 10% mandatory hold implies a -125 vig on both sides of a two-sided line. This means that a $125 winning bet would earn just a $100 profit. A typical vig on a two-sided line is -110.

Some experts think more common, easily understood bets like NFL spreads could still have the -110 vig, but sportsbooks will make up the difference in places where the vig is more difficult for customers to calculate, such as parlays and teasers. The fear is that poor pricing could potentially drive gamblers to offshore, unlicensed sites.

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