Preparing to take over sports betting regulation from the Tennessee Education Lottery on January 1, the Tennessee Sports Wagering Advisory Council (SWAC) recently met to review proposed changes to sports betting regulations.
As in previous sessions, the state’s unique minimum 10 percent hold requirement dominated the conversation.
The hold provision requires that operators “win” at least 10 percent from bettors as their gross revenue hold or face a penalty. The national average for hold is 7 percent—i.e., operators keep an average of $7 per $100 wager after the bettor is paid.
The rule has been in place since mobile sports betting kicked off on November 1, 2020. However, when a major wagering event favors bettors, sportsbooks frequently struggle to meet minimum requirements.
During the public comment period, major stakeholders including BetMGM, Caesars, DraftKings, FanDuel, and TwinSpires voiced concerns about the hold. Many asked that the hold be lowered or eliminated altogether. But committee members suggested keeping the 10 percent hold as well as the annual assessment of fines.
Operators would be required to report their previous year’s hold before January 15, or be held in violation of the rule. Those who don’t meet the minimum 10 percent hold can then accept the violation and pay a fine of up to $25,000. Or they can avoid the fine and violation by paying a tax equal to the amount they would have paid by complying with the regulation. Committee members said this is a fair compromise that allows licensees to avoid a bad mark on their permanent record.
The state calculates hold according to adjusted gross income and requires operators to pay a 20 percent privilege tax on annual AGI. As a result, a minimum hold requirement guarantees the state a certain level of annual revenue. The funds are used for secondary education, local infrastructure and problem gambling services.
Rulemaking Committee Chair Tom Lee noted besides regulating sports betting, the SWAC also is responsible for making sure sports wagering produces adequate income for the state.
He said, “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.”
Lee said the committee is skeptical about eliminating the hold entirely. He stated, “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.”
Committee member Kandace Stewart said keeping the 10 percent hold strengthens the state’s reputation as safe, responsible and fiscally successful. She said, “I think it gives an opportunity for the state to meet its goals and its objectives and for the operators to have a little bit of an opportunity to figure out how best to help us with our primary goal.”
After the SWAC approves the final emergency rules, they’ll be approved by the full SWAC council and be sent to the Attorney General’s office for review. If the SWAC approves the emergency rules, they’ll go to the full SWAC council and on to the Attorney General’s office for 180 days. During that period, the SWAC will draft and implement permanent rules.
