Bettor Decisions – The Price for Tennessee’s Sports Wagering Rules

• Questions remain if bettors will accept ramifications of Tennessee’s minimum 10% hold
• Is Tennessee motivating bettors playing offshore by being potentially uncompetitive?
• If successful, will other US states model Tennessee’s high tax & hold structure?

Much has been made about the groundbreaking approach to legalize sports wagering in Tennessee on November 1. While other state legislators have a keen eye on the initial results, perhaps the new bettors themselves in the Volunteer State should capture closer attention.

Tennessee sits in an unusual situation in many ways compared to other sports betting states within the US in that it offers bettors an online-only option. In most cases the reverse case takes precedent involving some mandated retail or onsite casino locations, paving the way for often a fight for if online wagering will be approved. In many tribal-based US states, that very scenario is currently taking place.

But the bigger news is that Tennessee has decided to set themselves apart from other US states in mandating a minimum 10% hold for their operators. Having respect for the long history of sports wagering, whether termed “legally or illegally” that is extremely high where it conventionally has fallen at approximately 6% to 7% at best for several years. And on average a 5% hold.

As an example, if a book takes in $1,000,000 in bets and makes $100,000 in revenue, its hold percentage would be 10%. Again, in comparison, Nevada has historically maintained a hold rate in the 5-6% range. Pennsylvania has struggled to maintain an approximate 6-7%, bolstered by a few good months before the Coronavirus hit.

The Tennessee Education Lottery Corporation, who will run sports wagering within the state and is aware of those numbers could potentially change the hold minimum percentage but will not be eligible to do so until November 2021.

Another factor that should inevitably face bettors is the noticeably high 20% tax rate on revenue. Thus far, four operators have obtained licenses in Tennessee including sports wagering powers DraftKings Sportsbook, FanDuel, and BetMGM with newcomer Tennessee Action 24/7, who are based in the state.

The break the operators have received in Tennessee is the relatively low licensing fee to get started. Illinois ($20 million for online-only operators) and Pennsylvania ($10 million) have the steepest licensing fees, while New Jersey ($100,000), Indiana ($100,000) and Iowa ($45,000) have opted to go much lower.

Who Pays the Price for “Tennessee” Rules?

Not to be negative, because if I am located within the online geolocation confines of Tennessee, I am thrilled to have the opportunity to bet on sports today – now legally. However, under fair rules, it seems the BETTOR will eventually pay the price for these unusual circumstances the state has decided to mandate.

The fundamental framework for an average game among several sports has traditionally been set at a 10% commission or rake for generations.  It is become accepted with exceptions made for very unbalanced action.  Say, a -110 line for a favorite and offering a +110 return for the underdog.  The “dimeline” (10%) as it is more popularly known is a wagering axiom.

In Tennessee, it could potentially be asked of bettors geofenced in by state law to pay a premium.  A typical line may indeed look like this during the NFL season:

Tennessee Titans -4.5   -115

Atlanta Falcons +4.5     Even

Also, unlike a much more convenient scenario involving as an example the New Jersey market, the Tennessee bettor will have much less recourse as it will be hundreds of miles bordering the nearest current legalized sports wagering market. Georgia, Kentucky, or North Carolina seems to be at least a year or more away from involving their potential sports wagering plans.

Facing the Fears

The biggest fear the operators and the state face are underestimating the knowledge and experience of their new sports wagering customers.

Indeed, they still do have a choice in either maintaining or returning to illegal offshore sports betting operators that are still in business. These illegal operators are aware of the competitive situation in Tennessee and now have been given the special opportunity to offer incentives to those customers. Keeping everyday lines at a competitive advantage could be enticing for many experienced bettors.

It has been thought that new operators in Tennessee may use bonuses to persuade bettors using parlays to keep them away from single-game wagering. Parlays have proven to be the backbone of the sports wagering industry, quite popular with the everyday bettor.

Another theory suggests sportsbooks may ignore the 10% minimum hold rules and accept fines levied by the Tennessee Education Lottery. A sort of “win-win” temporary situation in that paying $25,00-$50,000 fines would act as a tax fund for the state against providing better bottom-line results for the sportsbooks and their customers.

The most damaging potential flaw may be losing the opportunity to attract large bettors, VIP’s or what is referred to as wagering “sharks” into their customer base.

Being forced to accept the slightest uncompetitive edge or paying any unnecessary additional tax is taboo for any large sports bettor to accept. Again, losing this important sector to the offshore market defeats one of the primary purposes of why legal sports wagering was established in Tennessee. That is crucial tax fund money lost to the state.

The Future Book

Keep your eye on these unique legislative policies involving Tennessee sports wagering in the upcoming months.  Should this “10% minimum profit” benchmark become an accepted trend filtering to other states it could have a serious effect on the entire sports wagering business.

It could potentially prove successful and move the needle in that direction. Especially during our ongoing Covid-19 crisis where online wagering is dominating. On the other hand, what set out as a deterrent to offshore wagering may have the opposite effect, encouraging many bettors to maintain their more competitive, long-held pricing structure.

Simply put, if you can buy your regular gas for $1.99 a gallon every day at the Shell station, why be forced to purchase the same fuel at the Mobil across the street for $2.25.