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One of the more contentious US legal sports betting launches so far has officially started taking applications, just over a week after a set of controversial guidelines were finalized by The Tennessee Education Lottery (TEL). Applications were posted on the TEL website last week inviting potential operators to throw their names into Tennessee's online-only Sports Betting Hat.
Questions remain about sportsbooks' desire to enter into a market that doesn’t seem to be favorable to operators or consumers alike. An unprecedented mandatory hold, a high license fee, and an unusually high tax rate are all areas that potential sports betting providers will be taking a hard look at in order to determine their viability in a market that lacks any professional team and any brick-and-mortar facility.
There were many industry insiders that frowned upon Tennessee's final licensing rules. On April 15, Tennessee announced a 10% mandatory hold for at least one year, highest among states with legal sports betting which means that 90 cents for every $1 bet is what operators are expected to hold. The bettors' wins, in turn, are capped at 90%. The state also approved a high license fee ($750,000) for sportsbook operators and settled on a 20% tax rate for legal sports betting when other states collect between 6.75% and 15%.
Yaniv Sherman, 888 Holdings' head of commercial development summed up the potential speedbumps in Tennessee's bid to launch a legal sports betting platform up perfectly when he said: “Now that the secondary legislation is out we can evaluate the potential market and business potential of Tennessee. The combination of a relatively high tax rate, mandatory hold, and license fee (paid to the state and not to a physical property, but basically an add-on tax) indeed creates a challenging landscape.
He went on to say: “A 10% mandatory hold would mean operators will need to maintain an even higher hold, to create a buffer. We’ve been able to operate in similar commercial frameworks in other territories around the globe, but that devil is in the details, Tennessee should be a strong sport state with its collegiate and professional legacy.”
Not to be deterred
Despite the seemingly unfavorable conditions for the Tennessee legal betting industry, there is no shortage of providers lined up to get a piece of the pie. It seems that the rules have given providers pause but haven’t scared them away.
Roar Digital is planning on a move into Tennessee with its BetMGM mobile platform, The Stars Group “intends to seek approval to offer our online gaming products in Tennessee" and many of the bigger providers are mulling their options ahead of a possible application. Kindred Group is also said to be seriously considering expanding to Tennessee.
With Tennessee having its ducks in a row, and with multiple big sports gambling providers lined up in the state, the launch is expected to come in July, or sometime before the next NFL season. Hopes for Tennessee bettors is that there will be that healthy competition between rival sportsbooks and that there are actual sports to bet on by that time.
What it all means
The Tennessee betting platform won’t just go away or cease to exist but a report from Eilers & Krejcik, an independent research and consulting firm points out the fact that the state stands to lose $10.9 million annually with the hold rate where it is. Other studies see Tennessee losing up to $25 million in total revenue under the current rules.
Revenue aside, the draw for state officials seems to be the 20% tax rate that could produce, according to some models, between $23 million and $45 million. Those numbers seem to be washing away any concern about the hold rates and licensing fees.
It seems like Tennessee’s payout cap and hold rate makes it a steep price to pay for the state whose official launch is said to be just a few months away. There will be a lot of eyes on Tennessee by bettors, operators, and prospective legal betting states to see just how it goes. Who knows, Tennessee’s out-of-the-box rules may become the rule, rather than the exception.