Sports-betting operators shouldn't have to 'hold' 10% of wagers | Opinion

• Evan Davis is the managing director of sports betting and gaming for SeventySix Capital Sports Advisory.

In November, Tennessee will join 19 other jurisdictions around the country where betting on sports through legal, regulated channels can occur. But it’s doing so with one hand tied behind its back.

Unlike every other state that’s legalized sports betting, Tennessee has chosen to implement a requirement that sports-betting operators “hold” 10% of the amounts wagered, meaning that these operators are actually being required to achieve a minimum return on bets.

The rationale behind this requirement – which is not required under state law but has nonetheless been implemented by the Tennessee Education Lottery Corporation, which oversees sports betting – is obvious: The state imposes a 20% tax on sportsbook operators’ gross gaming revenues, meaning that if a sportsbook operator doesn’t make money on the bets that it takes, neither does the state (aside from an annual $750,000 licensing fee, that is).

Imagine this restriction in other industries

But there’s a reason why this type of requirement doesn’t exist in other industries, or in any other state with respect to sports-wagering operators. Imagine if grocery stores were forbidden by law from offering milk as a “loss leader” to attract customers, or if a brand-new restaurant couldn’t give away a free sandwich in order to promote its brand. Companies do this all the time to reap the longer-term benefits associated with these marketing strategies, but in Tennessee, a sports-betting operator could face fines and license suspensions for the sin of not being profitable enough.

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It’s Tennesseans who will suffer the consequences of this requirement. The legislature had the foresight to allow sports betting to occur anywhere in the state, so that anyone 21 or older with a smartphone can bet from their couch in Nashville, Knoxville, Memphis or anywhere in between. Moreover, betting isn’t limited to Tennessee residents, meaning that sports fans in states like Kentucky and Georgia – where sports betting is not yet legal – can simply drive across the border to place bets, a boon not only for Tennessee operators but also the state, which would enjoy the tax revenues associated with operators’ revenues from these bets.

Promotional opportunities limited

It will be hard, though, for operators to convince them to do so. The 10% hold requirement will limit the promotional opportunities that they can offer. Moreover, it will actually force operators into giving customers worse betting odds than they will likely be able to find not only in virtually any other state that allows sports betting, but also at the offshore sportsbooks that continue to illegally serve individuals in Tennessee and across the United States. Every bet placed offshore isn’t just one for which a bettor has little or no consumer protections, it’s also one that deprives Tennessee of any tax revenues whatsoever.

States that have legalized sports wagering have watched it flourish. In New Jersey alone, over $36 million in taxes was collected during calendar year 2019 through its tax (which, incidentally, is at a much lower rate than Tennessee’s) on sports wagering revenues. If it’s going to succeed in Tennessee, however, it will be incumbent on the Tennessee Education Lottery Commission to rescind its nonsensical 10% hold requirement and allow the industry to flourish here just as it has in other states across the nation.

Evan Davis is the managing director of sports betting and gaming for SeventySix Capital Sports Advisory.