Pump The Brakes On Tennessee Sports Betting

Updated information about the proposed regulations for legal sports betting in Tennessee may cause it to hit a snag before passing.

With 2020 coming up very quickly, it is anticipated that many more states will jump on the legalized sports betting bandwagon. Applications are soon to be received in Illinois, while in Michigan, a bill is on the Governor’s desk hoping for a Christmas present of signature. In Tennessee, a notoriously conservative state when it comes to gambling, sports betting had hope when it passed legislation and then released a document in November outlining the proposed rules and regulations for the state. Here is a link to the 47-page report for those who are interested in a deep dive: https://www.tnlottery.com/sites/default/files/2019-11/Draft_Sports%20Gaming%20License%20Rules%2C%20Regulations%2C%20Standards.pdf

This document was open for public comment until Dec 23rd, which gave people hope that it would be settled by early in the New Year. However, this week that deadline for comments has been pushed back to January 6th, and we think we may know why.

A large document with some small print

Reviewing the document, there are lots of pain points when it comes to who can and will apply for sports betting licenses in Tennessee. However, our focus is more on the rules when it comes to the operations and the bettors themselves. For the most part, the language in this document is in line with other states that have successfully launched sports betting, but there are a couple of points that likely will be cause for debate.

Let’s start with Tennessee’s view on bets that push. For the uninitiated, a “push” bet is a tie – when you bet on either side of an outcome but the result falls right on the betting line. If your bet is a single bet – only placed on that event – you are given your original stake back. When you typically bet in a parlay and there is a push, the bet reverts to the next step lower. For example, if you have a 5 team parlay and you win 4 bets but push one, good sportsbooks deem that a winning 4 team parlay and adjust the odds accordingly. According to the rules set out by Tennessee, any bet that pushes in a parlay will be considered a losing bet. This model is one adopted by many state lotteries in the U.S. and Canada that consider parlays a lottery game. While the general public betting 2 or 3 dollars on these parlays may not care, the actual sports bettor will take notice of this right away. This is a foolish way of handling these bets, which are, for the most part, very profitable for sportsbooks, and will only serve to push people to alternative means of betting like the offshore books.

Also troubling in the verbiage in section 15.1.11 of these regulations is a seemingly innocuous statement that reads, “Sports Gaming Operator’s aggregate annual payout shall not exceed 85%.” Let’s look at that in more detail. The state is saying, in essence, that the operators must hold 15% on their sports bets. This is a near impossibility without price manipulation of the bets themselves. If you look at the historical data from Nevada over the last two decades, their sportsbook hold percentage is just shy of 5%. That is a considerable distance from the number that Tennessee is proposing. Now, while some of the states that are new to regulated sports betting have seen higher hold percentages in the first few months of operation, over time these will settle back down to the 5% figure. The only way to reach the 15% hold is to make the “juice” more expensive, which is a very shortsighted proposition. While offshore books are still an option for players, smart bettors will soon find out their wagers are cheaper if made with a book not regulated by the state, and this may change their behavior. This is no doubt going to be a contentious issue and we suspect the state has heard many comments on the topic in its public forum.

What’s next?

We didn’t touch upon the restrictions on who can apply for a license but suffice it to say there will be significant resistance from the folks at Fanduel and Draft Kings. For now, we expect there to be a flurry of commentary from the industry experts, and come January 6th, we are hopeful that meaningful discussions will take place to address the topics we raised in this article.

But hey…at least there is no Integrity Fee, right?