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Tennessee sports betting could cost itself nearly $11 million annually in tax revenue by imposing minimum hold requirements on operators.
That’s according to a new analysis from Eilers & Krejcik Gaming published this week.
The state lottery last week completed a public consultation on its proposed Tennessee sports betting regulations, including the minimum hold rate of 15%. That would equate to a maximum of 85 cents from every bet paid back to the customer.
The 15% figure is roughly double the average hold in New Jersey sports betting and nearly three times the long-term Nevada hold of 5.5%.
The lottery did not clarify the reason behind the clause, but it appears to come from France. The 15% hold rule was introduced there when the market opened in 2010 as a way to “combat money laundering and discourage excessive gambling.
However, the report published this week said the rule would create “unnatural market distortion
The analyst firm pointed out the French market had significantly underperformed its European peers, with revenues per capita of less than between €10, compared to €35-€40 in the UK or Denmark.
“A minimum hold requirement undermines Tennessee’s legal sports betting market,” the report notes. “[It] drives worse pricing and product, leaving consumers open to considering legal sports betting products from other states or those available in the illegal market.”
Eilers & Krejcik said such a rule would cost Tennessee sports betting $10.9 million a year in lost tax receipts while reducing the number of operators willing to participate in the market from 22 to 10.
Specifically, bettors faced with a worse product could travel to other states to bet, remain in the black market or not bet at all.
A brief survey of 12 operators conducted by the analyst showed two-thirds would reconsider participating in the Tennessee market if the minimum hold clause were included.
“We estimate the presence of the minimum hold requirement will result in Tennessee capturing 80% less of the illegal sports betting market than it would otherwise,” the report adds. “As proposed, [the clause] is a fundamentally flawed policy.”
The minimum hold rate was one of several controversial suggestions in the draft regulations. Those also include a requirement that pushes on parlay cards be graded as losers and a requirement that operators be forced to share betting information with professional sports leagues.
Tennessee Lottery director of communications Dave Smith said all rules were still in draft form and the lottery “anticipated that changes would be made.”
He said responses to the consultation would be published on the lottery website on Jan. 15.
It’s worth noting the draft rules were published in late November, before the hire of Jennifer Roberts, a former UNLV gaming law professor, as director of sports gaming regulation.