Proposed 15% Hold By Tennessee Kills Sports Betting Market

Proposed 15% Hold By Tennessee Kills Sports Betting Market
© USA Today

The proposed draft rules for sports betting in Tennessee will poison the whole thing from the start.

Specifically, that is, the requirement that operators “aggregate annual payout shall not exceed 85%,” or, translated, take a 15% hold.

If Tennessee Education Lottery Corporation regulators need further evidence, it’s in a study by industry analysts Eilers & Krejcik Gaming, which projects that the proposed 15-percent hold would greatly hinder the fledgling, all-mobile market.

That’s more than double the national average of roughly 7%.

It’s a whole lot more than New Jersey (6.9%), where its sportsbooks have helped establish New Jersey as the model for the post-PASPA sports betting market in America.

It’s even more than Nevada (6.3%), which has been doing this for a while now and had a record month in November.

And it’s even more than Delaware (12.8%), which seems to be struggling to make ends meetwith this sports betting thing.

This will be bad for business before business even begins in a state with major potential and neighbors and an illegal market ready to exploit any missteps.

The report, which applied a similar model from France — as there is none comparable in the 14 states with sports betting currently legal and underway — made the following conclusions:

  • $10.9 million in annual revenue loss for Tennessee by not using something close to the 7.5% national norm.
  • 55% decline in operator participation.
  • 80% decline in “illegal market demand" capture.

The extension of the Tennessee Lottery’s rules comment period ended on Monday. According to the state website, results will be posted on Jan. 15.

Sports betting was legalized in Tennessee in July, opening what figured to be a bountiful market, considering the state's abundance of professional and major college teams and status as a tourist haven.

Details Of The Report On Tennessee

The Eilers & Krejcik report, which calls the proposed hold requirement "fundamentally flawed policy," said: "At a minimum, the proposed regulation is too underdeveloped to serve as effective policy. Further, [it] will result in unintended consequences, undermines the effectiveness of regulators, and appears to actively work against the intent of the Tennessee legislators who passed sports betting."

Results of the hold requirement, according to the report, would include:

  • “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.”

Another contentious facet of the draft rules was the scoring of pushes in parlays as losses, but the report drilled down on the hold issue.

Tennessee Stands To Lose Money

The expense of the additional friction for bettors is underscored by the report’s mention that 67% of Tennessee’s population resides within an hour drive or less from states that Eiler & Krejcik surmise to have legal sports betting underway by 2022.

Retail sports betting is underway in Arkansas and Mississippi, while North Carolina has legalized but not implemented a version limited to a select group of western casinos. Illinois has legalized with eventual full mobile, but has not yet finalized regulations for rollout.

According to the firm, the methodology for the report also included a series of surveys and “several proprietary models.” It was commissioned by iDEA Growth.

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