In Tennessee, the first state to legalize online/mobile-only sports betting, the public comment period for proposed sports wagering regulations, released on November 22, was expected to close on December 23. However, the Sports Wagering Advisory Council and the Tennessee Education Lottery Corp. (TELC), which will regulate sports wagering under the law passed six months ago, extended the deadline to January 6.
In a letter to TELC, council member Thomas H. Lee addressed numerous issues regarding the draft regulations, starting with the TELC’s business plan. Lee wrote, “It is difficult to comment upon the draft rules, and ‘to advise the board of best practices with respect to sports wagering’ without visibility into the business plan the draft rules are intended to support. It is not unlike approving plans for construction of a vehicle without knowing whether the vehicle is intended to haul gravel or transport the family to school.”
Lee also expressed concerns about the rule requiring licensed sportsbooks to keep a minimum of 15 percent of all wagers, resulting in a reduced overall payout to bettors. According to gaming consultancy Global Market Advisors, the typical hold for a sportsbook is about 5 percent, or three times less than Tennessee’s proposal—meaning bettors there could see lower odds than their counterparts in other states.
Lee wrote, “Draft Rule 15.1.11 will hurt players. Less money paid to players means smaller prize pools. Smaller prize pools means players will migrate to other states’ platforms or stay with unregulated offshore betting services.
“Because Tennessee’s sports gaming is mobile only, Tennessee operators cannot pair lodging, meals and entertainment options with gaming opportunities, as at a casino. This means the handle is dependent on pure gaming only. This means the cap hurts Tennessee, and the scholarships, infrastructure and mental health programs the Act intends to fund.”
Lee continued, “As presently structured, however, the Draft Rules allow licensees to keep more money in profits than virtually every other state—and pay less to Tennesseans in winnings. While a low payout cap increases AGI, presumably increasing privilege tax revenue, the better way to increase revenue, as well as jobs and the success of the business, would be to grow the handle.”
Sports betting attorney Daniel Wallach said the 85 percent cap may be subject to a legal challenge. He noted a 2013 Tennessee Supreme Court case stated, “An action by an administrative agency that exceeds the scope of authority delegated to the agency by the legislature has no force or effect.” Wallach said Tennessee’s law does not mention requiring a cap; it states only that the gaming commission set up to regulate sports betting under the auspices of the Tennessee Lottery must develop a policy outlining the rules regarding wagers and payouts.
Also, regarding advertising, Lee wrote, “I have grave concerns about much of the content-based limitations on speech.” He also pointed out issues concerning licensing structure, which, he wrote, “have serious implications under the Act,” including civil and criminal penalties, such as considering an applicant’s “overall suitability.”
Critics also commented on a section stating, “If there is a tie (push) in one event of the parlay, one leg would be unsuccessful; therefore, the parlay would be deemed a loss.” The industry standard maintains a pushed—or tied—leg would get cancelled from the parlay, but the remainder of the bet would remain intact with odds recalculated accordingly. A push on a parlay means a ticket with the potential to win elsewhere would be a loser in Tennessee.”
Observers say these questionable draft rules could lead bettors to wager through illegal channels, where odds and payouts would be more favorable. “I don’t understand why the commission would restrain a licensee from awarding patrons an amount that falls well short of the norm, and what other states like nearby Mississippi are allowing. How does a licensee even go about engineering its book to ensure that bettors as a whole get paid less to meet that?” an industry source said.
Those worried about the possibility of a single-source supplier point to New Hampshire, where the General Court passed a law allowing up to five mobile and 10 retail sportsbooks. However, the lottery selected only one operator out of the 13 that applied, after DraftKings offered the state a 51 percent of gross gaming revenue if it was chosen as the sole operator.
Also in Washington, D.C., the district council authorized the lottery to regulate and operate sports betting. The council chose to extend the city’s lottery contract to vendor Intralot to include sports betting, leading to an ongoing controversy.
