If Tennessee‘s Sports Wagering Advisory Council agrees with its rulemaking committee, TN sportsbooks will not get a reprieve from the state’s minimum 10% hold.
But the rules committee acknowledged hearing the industry and came up with a compromise for a situation where both sides could not have been farther apart.
Most of the online Tennessee sportsbooks wanted to see that unique hold requirement on adjusted gross income disappear completely. The committee, meanwhile, was considering changing the rule to include quarterly reports instead of checking for compliance annually.
Neither of those will happen. While the mandatory hold and annual review likely will remain in the rules, operators could have a chance to fix any hold shortcoming without a fine or formal violation.
This change and other small tweaks still require full approval from the SWAC. The council will take over TN sports betting regulation Jan. 1.
What options do TN sportsbooks have?
Operators will have two choices if they are short of the mandatory 10% hold:
- Pay the fine, up to $25,000, as the rule currently states. This will likely be the cheaper option but will also count against that operator as a regulatory action that other jurisdictions will see. That could impact a company’s ability to continue its US sports betting expansion.
- Under the proposed change, operators could also pay the difference in taxes between what they would have paid had they hit 10% and what has already been paid.
A hypothetical to illustrate that: operator X takes $500 million in bets from Jan. 1 through Dec. 31. The rule requires $50 million in adjusted gross income to be kept, with that sports betting revenue being taxed at 20%. That should lead to $10 million in taxes paid for the year.
Say operator X only reports $40 million in AGI, though, with $8 million paid in privilege tax for the year. The operator could either pay the $25,000 fine and deal with those potential regulatory consequences or it could pay $2 million to bridge the gap in taxes owed.
Some operators will likely have to pay up
Tennessee does not break out information by operator in its monthly reports, so it is not known who will owe what just yet. The stats through October, though, suggest some underperformance on that mandatory hold.
Four operators launched with the market last November and will have their hold for the year reviewed: