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Legal sports betting continues to sweep across the United States.
As of Sunday, we can add Tennessee to the ever-growing list of states with sports betting. The first four operators launched their Tennessee sports betting apps just in time for Week 8 of the NFL season.
Tennessee is a bit unusual among sports betting states in that it’s online only. Typically, cutting in a state’s land-based casino industry is a prerequisite to any sort of online gambling expansion. However, Tennessee is one of only a handful of states with no land-based casinos at all, whether tribal or commercial.
That a state with such a conservative stance on gambling in general has gone ahead with sports betting is testament to its momentum. It has only been possible to legalize it outside of Nevada since 2018, yet already nearly half of US states have some form of sports betting available or on the way.
Tennessee is the 12th state to have launched online betting, with Michigan and Virginia coming soon to make it 14. Conversely, the first US online casinos appeared in 2013, yet to date only five states have legalized them. The big question for states like Tennessee is whether a successful roll-out of online sports betting is likely to pave the way for other forms of online gambling as well.
When a state launches a new online gambling product, there are a number of ways things can play out. To date, we’ve seen both floods and trickles. In West Virginia, we even saw a false start.
Tennessee started off somewhat on the fast side, with four operators ready to go on day one. These comprise three of the big names in the industry, plus one homegrown wildcard:
To date, the two daily fantasy sports companies, DraftKings and FanDuel, have been tearing up the newly legal sports betting space. BetMGM has done very well with its New Jersey online casino and is well-positioned to make big moves nationally, though its progress has been held up by regulatory delays in Pennsylvania.
Action 24/7, on the other hand, is a complete unknown. Its marketing strategy seems to bank on the hope that Tennessee residents would prefer to bet with a grassroots local business than a major national or international corporation.
Running a successful sportsbook is extremely complicated, however. Nor have we seen a truly new company try to make a go of it in the US. BetAmerica is a new brand, but came about as a partnership between Churchill Downs and SBTech (later replaced by Kambi), none of whom are unfamiliar with running a betting operation. The closest comparison would be Sky Ute Sportsbook in Colorado, though it is being operated by USBookmaking, which has previous experience in Nevada.
The most unusual aspect of the Tennessee sports betting landscape, however, may be an oddball rule for operators. State law requires that they pay out a maximum of 90% of their gross receipts to bettors. Turned around, that’s the same as saying they have a minimum annual hold of 10%, when the industry norm is mid- to high-single-digit percentages.
Exactly how operators manage that remains to be seen. If they do it by offering less favorable lines, it may simply drive players back to illegal offshore sportsbooks. More likely, we could see operators using bonuses to encourage parlay betting, or being stricter about limiting winning bettors.
Could we see some operators ignore the rule entirely? Maybe, as the fine for failure is a maximum of just $25,000 annually. However, the Sports Wagering Committee (part of the Tennessee Education Lottery) has the option to strip non-compliant operators of their license instead.
If the regulator takes a hard line, the minimum hold will be a defining feature of the market. If they’re content to collect fines, it may end up being more like an additional annual tax in practice. There’s been some suggestion that a compromise might be for operators to pay tax on the “missing” revenue in lieu of a fine, if they come up short of the required hold.
The only other jurisdiction with a similar policy in place is France, and it has had unfortunate repercussions there. If it similarly backfires in Tennessee, it could wind up being taken off the books, reinterpreted, or simply not enforced.
Naturally, Tennessee-based fans of poker or casino gambling will be hoping that legal sports betting leads to more online gambling legislation. They might be holding their breath for a while, however.
For one thing, current Governor Bill Lee said that the only reason he did not veto the sports betting bill in 2019 was that it did not include provisions for casinos. This strongly implies that he would veto any legislation aimed at establishing casinos in the state, whether land-based or online.
The next state election isn’t until 2022. Even then, one would assume Lee to be a favorite for re-election, as Tennessee is generally a red state, though it did have a Democrat governor as recently as 2011.
Aside from a change in political leadership, the main thing that could help Tennessee in the right direction is adoption of online gambling options in neighboring states. To date, it seems as if the trend in the US is for online casino and online poker to be spreading outward from New Jersey. Seeing something working well nearby tends to make it more palatable to voters, and states become concerned with losing potential tax revenue to cross-border gambling.
Unfortunately, there’s little hope on that front, either. Tennessee’s neighbors to the south and west are even more conservative, and North Carolina doesn’t hold much promise. Kentucky is perhaps the state to watch, yet it has already failed twice to legalize online sports and poker. Those efforts didn’t include online casinos, and like Tennessee, there are no land-based casinos in the state.
Overall, then, it’s remarkable enough that Tennessee got online sports betting, never mind anything else. Gamblers in the state may just have to call that a win and wait for attitudes to change on the national scale.