An analysis published last week by Eilers & Krejcik Gaming indicates Tennessee could lose up to $11 million a year in tax revenue if the state imposes a minimum hold requirement on sports betting operators.
Proposed regulations call for a hold rate of 15 percent, almost double the hold in New Jersey and close to three times that of Nevada, according to LegalSportsReport.com.
The state lottery, which will oversee sports betting, did not specify a reason for the figure, but it could be something imported from France. The 15 percent hold rule was introduced when the market opened in 2010 as a way to combat money laundering and discourage excessive gambling, but Eilers & Krejcik said the rule would create “unnatural market distortion.” The French market significantly underperformed its European peers, with revenues per capita of less than €10 (US$11.15), compared to €35-€40 in the U.K. or Denmark.
“A minimum hold requirement undermines Tennessee’s legal sports betting market,” the report noted. “It drives worse pricing and product, leaving consumers open to considering legal sports betting products from other states or those available in the illegal market.”
In addition to the revenue loss, Eilers & Krejcik said such a rule could reduce the number of operators willing to participate in the market from 22 to just 10. Bettors faced with a unfavorable product could travel to other states to bet, remain in the black market, or not bet at all. A brief survey of 12 operators conducted by the firm showed two-thirds would reconsider participating in the Tennessee market if the minimum hold clause were included.
“We estimate the presence of the minimum hold requirement will result in Tennessee capturing 80 percent less of the illegal sports betting market than it would otherwise,” the report added. “As proposed, the clause is a fundamentally flawed policy.”
Among other conclusions in the report:
- A minimum hold requirement will result in sportsbooks offering substandard odds
- Sportsbooks may have to further worsen odds on local teams to help balance risk
- Sportsbooks will have to avoid large payout liabilities (e.g., big-pay parlays and futures or similar jackpot bets) to stay within the hold requirement
All this comes in a state where 67 percent of the population lives within an hour of states with legal sports betting or close to having legalized betting, like Arkansas, Mississippi, North Carolina and Illinois.
Tennessee Lottery Director of Communications Dave Smith said all rules were still in draft form and the lottery “anticipated that changes would be made.”
The draft rules were published in late November, before the hire of Jennifer Roberts, a former UNLV gaming law professor, as director of sports gaming regulation. The comment period ended January 15.
