On Nov. 21, the Tennessee Lottery released its draft sports gambling rules and regulations. The release gave stakeholders and the public until Dec. 23 to issue public comment on the rules, and their impact on sports betting in the Volunteer State. That deadline has been pushed back to Jan. 6, Legal Sports Report has learned, to allow for more time for comments to come in.
Let’s examine some areas that could pose problems for operators or bettors if Tennessee doesn’t amend its rules.
Who can get a license for Tennessee sportsbooks?
Section 15.1.7 establishes individuals who are prohibited from applying for a sports gambling license. While any employee of a professional sports team is prohibited from applying for a license, the restriction is much narrower at the college level. Here, this applies only to governing bodies, coaches and players.
If Tennessee’s goal is avoiding a conflict of interest, it would seem necessary that the ban would also extend to personnel within collegiate athletic departments. It’s also unclear whether “professional team employee” would include team owners. As individuals with access to inside information, team owners should be excluded from licensing eligibility.
So, wait: Who is still eligible?
The rules under 15.1.7(6) note that those convicted of certain crimes are also ineligible for licensure (at least until their rights are restored or the passage of a specified period of time). This is a very common provision in a variety of licensing schedules; what’s particularly uncommon is that it does not exclude individuals convicted for tax crimes or for fraud.
So, while a fraudster may still be eligible for a Tennessee gaming license, a misdemeanor drug violation may render an applicant ineligible. Such a provision seems to defeat the intent of these rules, which is to limit the risk of financial improprieties. While these rules remain in draft, the omission of tax crimes and fraud should be remedied.
You need to be a member of what?
One of the factors that the Tennessee Lottery proposes to use for applicant evaluation is membership in an organization called the “Global Lottery Monitoring System” (GLMS). This is a Swiss-based information-sharing organization. It’s associated with the World Lottery Association, an organization in which the President and CEO of the Tennessee Lottery is also president.
While membership in GLMS is just a consideration, it seems unnecessary to the protection of sports betting integrity in Tennessee. Using membership in an external group as a consideration for granting a license places an unnecessary burden on smaller operators.
Share sports betting information with who?
One of the most striking provisions of the proposed rules can be found in Section 15.1.8 (J)(4). This requires that sports gaming operators notify sports leagues of suspicious activities, as well as a number of other governmental bodies. In a vacuum, this isn’t problematic as this practice is common across the industry. What’s abnormal, however, is the requirement contained in 15.1.8 (K)(1), that sports gaming operators must “cooperate in good faith with investigations conducted by … sports governing bodies.”
A provision in state-issued regulations requiring cooperation with investigations conducted by private organizations raises myriad issues. Sports governing bodies have no obligations to provide even minimal constitutional protections. A professional sports league investigation is often collectively bargained between a union and ownership. Requiring reporting to law enforcement and the Tennessee Lottery should be sufficient for addressing potential criminal matters, without the risk of investigations being compromised through the potentially improper delegation of state powers to private parties.
In 15.1.8 (K)(5)(c), the Lottery again proposes to co-opt sports betting operators to enforce the rules of private sports organizations. The proposed rule would require sports betting operators to report, “Any potential breach of a sports governing body’s internal rules and codes of conduct pertaining to sports wagering.”
This is simply not a sportsbook operator’s job. If the goal of this proposed rule is to stop betting from unauthorized bettors, leagues should be required to provide information that would enable sportsbooks to identify prohibited bettors, and impose fines or other sanctions for a breach.
The proposed rules would also not impose any affirmative obligation on sports organizations to notify betting operators of information they become aware of that may compromise market integrity. This continues the trend of mandated information sharing being a one-way street.
You can’t advertise what?
Section 15.1.8(L) identifies the requirements for advertising. Some of the restrictions are commonplace, such as advertising to those under the age of 21. Other restrictions would raise potential problems with enforcement. These include, “Advertisements shall reflect generally accepted contemporary standards of good taste,” and, “Advertisements shall not be created that may be perceived as denigrating the work ethic.”
Firstly, what is meant by “denigrating the work ethic?” But more importantly, these vague and sweeping characterizations would raise potential First Amendment concerns for the Tennessee Lottery if they attempted to enforce marketing restrictions.
While the First Amendment provides more leniency to commercial speech than other types of speech, state actors are required to be very specific with the type of speech they are trying to restrict, and must present an important reason for doing so.
Players penalized for success in betting?
The Tennessee Lottery’s rules propose that a “Sports Gaming Operator’s aggregate annual payout shall not exceed 85%.”
This provision effectively mandates that operators hold 15%. While some newer states are holding double digits month over month, the most mature market, Nevada, does not hold close to this amount.
This number’s origins are unclear, but the long-term ability of operators to offer competitive pricing while holding 15% seems questionable. If anything, such a requirement is likely to see costs passed onto consumers. This could continue to support the illegal market as they search for more competitive pricing.
A push is a loss?
Rule 15.1.12 states: “If there is a tie (push) in one Event of the Parlay, one leg would be unsuccessful therefore, the Parlay would be deemed a loss.”
Again, it is unclear where this is adopted from, or why, but this is not the industry standard. Creating rules that are vastly different from the industry standard threatens the viability of the legal market. This rule should reflect the industry standard of removing the push from the parlay and recalculating the odds.
Adverse impact on DFS companies?
It’s unclear whether daily fantasy companies-turned-sportsbook operators would be disqualified from participation. One provision states: “The Applicant or Licensee is a company or individual who has been directly employed by any illegal or offshore book that serviced the United States or otherwise accepted illegal wagers from individuals located in the United States.”
It’s uncertain how the Tennessee Lottery will view companies that operated in contravention of state attorneys general opinions. It would seem logical, though, that if offshore sportsbook employees were excluded from license eligibility, companies that acted in contravention of state attorneys general opinions may be similarly disqualified.
Next steps
The Tennessee Lottery will review comments after submission, and some recommendations will be adopted. The completion of this comment period will bring sports betting one step closer to Tennessee.
