Proposed Tennessee Sports Betting Regulations Miss The Mark

Proposed Tennessee Sports Betting Regulations Miss The Mark

The Tennessee Education Lottery Corporation has extended the comment period for its proposed sports betting regulations. That development has not quelled uncertainty and unease that a mobile-only sports betting option in a state with no gambling history could be fatally flawed.

Foremost among the alarming additions to proposals released by Tennessee is an 85-percent aggregate annual payout limit (or 15-percent hold for operators).

Daniel Kustelski, co-founder and CEO of the Nashville-based Chalkline Sports betting platform, said he is hopeful that the review process will run its course in a positive way.

"There's a lot to like in the initial draft of the regulations, and a few items that will get a hard review from the Tennessee gaming community," Kustelski told Gambling.com. "I think the review process will address some of these items, like the aggregate annual payout limit. In my experience, this particular regulation would be very challenging from an operator standpoint. This is an important time to engage with policy-makers from around the US to make sure that we get it right, and we have good data points from New Jersey, Nevada, etc. to inform our final policy decision."

The deadline for public comment was Dec. 23, but has been extended to Jan. 6.

Jennifer Roberts Brings Experience

New state sports betting program director Jennifer Roberts tweeted a link inviting comments on the state website and social-media influencers like Captain Jack Andrews and Rufus Peabody implored followers to make proper suggestions for the fledgling market. Roberts, a respected industry expert and former associate director of the International Center for Gaming Regulation at the University of Nevada-Las Vegas, started her new role on Dec. 2 just after the initial comment period began in late November. Some hope her experience in Nevada will help establish the Tennessee market.

"Jennifer accepting this position in Tennessee is a win for the state: She understands the regulatory process," Kustelski said. "Industry watchers can debate these issues on social media all day, but we have a clear timeline and clear process for comments. This process works: Most other states have used something similar, but it relies on the strength of the community's feedback to get it right."

Roberts was not immediately available to comment Friday.

Why A High Hold Matters

New market standard-bearer New Jersey has a hold above 9 percent. The mature market in Nevada remains around 4 or 5 percent. The Tennessee hold-limit proposal seems off kilter.

”Hold is what the operators keep, or hold, after bets are settled,” said Gambling.com Group Plc Vice President of U.S. Business Max Bichsel. “In other words, it is what the house takes home. Typically, it is described as a percentage. For example, if there is $1 million wagered on the New York Giants/Eagles game this weekend and, once the game is completed, the operator wins $100,000, the hold percentage would be 10%. This metric is commonplace in both sports wagering and casino games.”

A high hold is bad for consumers, Bichsel said.

“High hold percentage requirement is basically forcing the operators to guarantee money won, which is consumer money lost,” he said. “Therefore, for the bowl game tonight for example, Buffalo is –7, -110 and Charlotte is +7 –110. If the state requires a hold percentage, the operator will be forced to make it more expensive for the average person to bet. That line could change from Buffalo -7 -130/ Charlotte +7 –120.

“More or less, it’s predatory sports betting. Makes losses much more devastating.”

Added Kustelski: “Typically, a sportsbook, let's just say they hold $5 out of a hundred. There's $100 wagered and typically the margin is 5% and the book keeps that 5% and then the $95 goes back to the player. Now in that scenario if you continue to wager with that now $95 and then next, you know, $90 and 50 cents or whatever it may be, you're going to play for a long time. But if you give me $100 as a bettor, and I could only give you $85 back, you're going to run out of your money pretty quickly.”

The hold could also potentially limit the number of operators who seek licenses to offer bets in Tennessee, making the state, like Oregon and Rhode Island, a single-source, lottery-run enterprise. While the prospect of a guaranteed 15% hold would seem enticing, those operators could suffer undue financial consequences, according to John A. Pappas, founder & CEO of Corridor Consulting.

“What operator would come in if this mandate remains in place? This type of restriction will make it hard attract any company that is currently offering sports betting in a state like New Jersey,” he said. “I'm sure every operator would love to have 15% holds, but that's just not the way sports spending works.

“Then what happens if it's November and you realize, ‘Whoa, wait, we've only had an average of 4% hold. What do we do now? We have to juice everything for the playoffs to try to get that total higher’.”

Current Proposals Could Enhance Off-Shore Market

Kustelski said the other highly scrutinized aspect of the proposed rules that must change is a push in a parlay equaling a loss. In other states with legal sports betting, a push (a tie between the bettor and sportsbook) is a voided chance in such instances.

The modern marketplace might not be receptive to lines priced poorly for consumers.

Savvy bettors could make the same choices as consumers choosing between video streaming services or online retailers, said Cody Havard, Ph.D. from the Sport and Leisure Management department at the University of Memphis. And that could benefit the illegal, unregulated market.

“People wouldn't react very positively to a 15% cut off of the top,” Havard told Bookies.com. “It could be different that it's dealing with gambling and it's dealing with sports. But I wonder, if it passes with the 15%, if people would actually start using services that are now legalized or if they're going to keep doing what they've been doing.”

There’s still time for Tennessee to get things right. Roberts’ stewardship could be key to steering the process on course.

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