Allow Us To Volunteer: The Tennessee Sports Betting Bill Is Really Bad

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Tennessee sports betting

Tennessee produces its finest export through a meticulous process. Weeks of distilling and years of aging craft a product tested by time.

If only the months spent creating the new Tennessee sports betting law yielded anything of the quality of Jack Daniel’s whiskey.

Tennessee last week became the fourth state to pass a sports betting law in 2019, joining Montana, Indianaand Iowa. The last of the group to pass, Tennessee’s bill is first for the wrong reasons.

Purchase required to enter TN sports betting

Volunteer State legislators responded to heavy lobbying from leagues by passing the country’s only mandate forcing sportsbooks to buy official league data to settle in-play wagers. The sole protection for operators comes from language requiring leagues to sell official data under “commercially reasonable terms.”

Prior to the Tennessee sports betting bill, commercially reasonable terms were those negotiated commercially. The NBA, NHL, and MLB struck private deals with sports betting operators in the past year, none of which needed the force of law to consummate.

Leagues offering official data feeds deserve fair compensation from those purchasing them. They invest considerable resources in gathering, refining, and consolidating that information.

Cementing in law a mandate to purchase official league data, though, could skew the market by delivering leagues a pricing monopoly. How can Tennessee regulators define “commercially reasonable” when legislators require a product with little market history and then suppress competition?

Data providers say privately they will not jeopardize relationships with gaming partners by abusing that advantage. That checks out with one state issuing a mandate but requires revisiting if more follow.

Tennessee sports betting a costly opportunity

Industry sources preliminarily peg the approximate cost of official league data at 1 to 2% of every dollar of gross gaming revenue. That required cost piles onto a scheme far friendlier to leagues and the state than to operators.

The Tennessee sports betting bill began with an annual licensing fee of $75,000 and a tax rate of 10%. Both figures fall unremarkably into the range set by other states.

The final text erects far steeper barriers to entry in the Tennessee market. Lawmakers increased the annual license cost to $750,000 and hiked the tax rate to 20%.

Only outlier Pennsylvania occupies similarly lofty airspace with its $10 million license fee and 36% effective tax rate. Indiana, a state with roughly the same population as Tennessee, passed a $100,000 annual license fee (with $50,000 renewals) and a tax rate of 9.5%.

Even that exorbitant $10 million is a one-time expense. Operators choosing to enter Tennessee will pay every year and cross that $10 million milepost in less than 15 years, should they survive that long in a market projected at just $229 million by Eilers & Krejcik Gaming.

Can operators afford to play in Tennessee?

Napkin math suggests operators will pay roughly 27 cents of every dollar of revenue to the government or leagues. That does not factor in the customer acquisition expenses in the online-only Tennessee market, where all betting will take place via mobile.

While that eliminates the cost for operators to partner with a casino, it also means sportsbooks cannot tap into an existing customer base. Get ready to spend on marketing if you don’t arrive with brand recognition.

Early market leaders FanDuel Sportsbook and DraftKings Sportsbook thereby start from ahead. Bet365 and PointsBet also look likely to jump in, though more likely to maintain appearances of their national ambitions than for profitability.

It’s not all about the benjamins

Beyond dollars, other matters of sense emerge from Tennessee’s bill.

The bill also creates the country’s first blanket ban restricting prop betting on all NCAA football and basketball games. The process amending the bill to include that ban spotlights a problem echoing beyond Tennessee: Some legislators lack understanding of the industry they are regulating.

Rep. Bob Ramsey carried the amendment for the University of Tennessee and Vanderbilt University. In an April committee hearing, he justified the ask by buffeting it with the assumption similar bans exist elsewhere.

They do not. Now other states modeling similar bills need not assume legal precedent for a college prop ban, in large part because Ramsey assumed one.

And another thing about banned bets …

Another late amendment evaded publicity but appears loaded with consequence as a potential beacon for league lobbying.

Leagues and colleges appear to receive the power to restrict bet types:

… the council, upon a demonstration of good cause from the requesting entity (a licensee; professional sports team, league, or association; or institution of higher education), will recommend to the board that the request be granted, and the board will promulgate an emergency rule granting the request.

The bill’s original language required a hearing with state regulators for leagues or colleges to show cause for their requests. The amendment removed the hearing requirement, as well as the authority of regulators.

Leagues routinely request this power in legislation at the state and federal levels. Compromise language regularly creates a provision for them to request restrictions but leaves the ultimate decision to state regulators.

This is not so in the Volunteer State, where leagues scored multiple victories with ramifications strong enough to ripple far beyond Tennessee.