Online sports betting became legal in Tennessee when Gov. Bill Lee let the Sports Gaming Act become law without his signature in May 2019. Lee was opposed to expanding gambling in the Volunteer State, but he opted to go along with the will of the legislature and not block the policy initiative.
Lee definitely had his finger on the scale, as he didn’t want any brick-and-mortar locations. Thus, Tennessee became the first state in the country to legalize an online/mobile-only sports wagering industry. Lee also wanted the Tennessee Education Lottery Corporation (TELC) in charge of the activity, rather than creating a new regulatory body. He got what he wanted.
The state isn’t home to any casinos, so the debate over internet-only wagering wasn’t too complicated, or at least lawmakers didn’t have to grapple with the pull of in-state businesses and employers exerting influence over policy. Ultimately, when many expected the state to sit on the sidelines, Tennessee moved the ball fairly quickly in the wake of the 2018 U.S. Supreme Court ruling striking down the federal ban on sports wagering outside Nevada.
How the TN sports betting law came together
The process came together relatively quickly, with Rep. Rick Staples, a Democrat from Knoxville, pre-filing legislation, House Bill 1, late in 2018. The measure was taken up once 2019 began, and it moved through the legislative process with some hiccups before ultimately reaching Lee’s desk.
The bill cleared the House by a 58-37 vote and the Senate, 20-12. Some stiff opposition was offered by lawmakers opposed to gambling expansion in general, but the majority of elected officials agreed that it was time to bring sports betting out of the shadows and capture the tax revenue that was already taking place through illicit wagering channels.
One example of the anti-gambling resistance was a proposed amendment to ban wagering on Sundays and on major holidays. The amendment would have crippled the regulated sports wagering industry, and it was defeated during the committee stage of the legislative process.
The Sports Gaming Act became effective July 1, 2019. As of this writing, sportsbooks are not yet live but are expected to launch in the fall of 2020.
As of early April 2020, the TELC was still in the process of crafting regulations, complying with the mandate of the 2019 Sports Gaming Act. The TELC released its first draft of proposed regulations in November 2019, and the process has proved quite controversial since that time.
Inside the provisions of House Bill No. 1
Who can play
- Tennessee sports betting is limited to anyone 21 years of age and older physically present within state borders. Users may register for accounts remotely, i.e. through online/mobile platforms.
- Sportsbooks must use “commercially and technologically reasonable procedures” to ensure minors don’t play.
- Individuals involved with a sports league or organization are prohibited from wagering. People with access to material nonpublic information about athletes are also prohibited. Certain state officials are not allowed to partake in sports wagering. The TELC will have a list of all persons and categories of persons excluded from wagering and distribute it to sportsbooks licensed by the state for compliance.
Who’s in charge
- The bill creates a Tennessee Education Lottery Corporation Sports Wagering Advisory Council, composed of nine members. Three are appointed by the governor, three by the House speaker, and three by the Senate speaker.
- Term lengths are two, three, and four years. A council member can be reappointed for another four-year term. They must live in Tennessee and must have experience in the sports industry, law enforcement, and/or accounting. The TELC is charged with promulgating regulations for the industry, but the council is required to assist it in the process. The council is required to meet at least once every quarter.
- Regulators must submit an annual report to the governor on the sports betting industry. It must be submitted no later than Sept. 30 of each year. Most states release monthly information on wagering, but Tennessee is poised to be less transparent.
Restrictions on betting
- In-game prop bets on collegiate sports are prohibited, along with bets on injuries and penalties.
- Sportsbooks are barred from extending credit to bettors.
- The law gives the TELC authority to create advertising rules for the industry.
- Sportsbooks are required to implement minimum problem/responsible gambling safeguards, such as allowing bettors to self-exclude or limit their time spent and amount bet on a platform.
- Bettors are limited to one account per sportsbook.
- Bettors can fund their accounts through debit card, electronic bank transfers, online and mobile payment systems, or any other form of financing that is approved by regulators.
- Regulators can issue an administrative fine against a sportsbook up to $25,000 for a regulatory violation, in addition to potentially suspending or revoking a license.
- Leagues may also request that the TELC exclude a certain wager if there’s an argument pertaining to public policy or safety. Regulators will carefully consider a request.
Licensing, Fees and Taxes
- Licensed operators must pay 20% in taxes on adjusted sports betting revenue.
- The annual licensing fee is $750,000, a relatively steep amount for a sportsbook, in addition to a $50,000 nonrefundable application fee. The TELC has 90 days to approve or deny an application.
- Tax revenue goes toward education programs (80%), local governments on a per capita basis for infrastructure projects (15%), and gambling addiction prevention and treatment by way of the Department of Mental Health and Substance Abuse Services (5%). All of the licensing fee money goes to the Tennessee Promise Scholarship fund.
- Sports leagues are prohibited from receiving a sports wagering license.
- The law requires that sportsbooks have cash on hand to pay off bettors in the event of shutdown or for any other reason. It’s a way to safeguard player funds.
- The law requires regulations addressing anti-money laundering safeguards.
- The law creates a definition for a sports betting vendor, which is an entity contracted or hired by a sportsbook for work in offering the product. Regulators can establish minor vendor fees.
Sports league data rule
- The legislation requires “official league data” for the purposes of settling in-game wagers.
- The law defines such data as “statistics, results, outcomes, and other data related to a sporting event obtained pursuant to an agreement with the relevant governing body of a sport or sports league, organization, or association whose corporate headquarters are based in the United States, or an entity expressly authorized by such governing body to provide such information to licensees for purposes of live betting.”
- Sportsbooks are required to use such data as long as it is being offered to them under “commercially reasonable terms,” which remains to be defined.
Brief history of gambling law in Tennessee
The Volunteer State is one of the more unfriendly states to legal gambling. There are no casinos or racetracks, though residents can access online horse betting sites. Parimutuel horse betting isn’t illegal under state law, so many in the state take advantage of advance deposit wagering. Tennessee was eyeing its own horse racing industry, equipped with wagering, through the 1987 Racing Control Act, but it was never fully implemented. The Racing Control Act was repealed in 2015.
Daily fantasy companies operate in the state, as Tennessee in 2016 passed the Fantasy Sports Act to regulate and license the industry. It can be seen as a precursor to sports betting. Top DFS sites are expected to be sports betting operators in the state.
Tennessee established a lottery in 2003, and it’s confined to brick-and-mortar facilities. The TELC does have an app for accessing winning ticket information, but sales through the internet are not allowed. Expanding sales to the web isn’t yet on the horizon for Tennessee.
Voters approved a Tennessee Lottery in 2002, ahead of the first sales in 2004. According to a recent state report, the lottery reported gross ticket sales of $1.735 billion for fiscal year 2018, bringing the total since the lottery’s inception to more than $18.3 billion.
In addition to horse racing, DFS, and the lottery, Tennessee does allow nonprofits to request permission to hold bingo or other games for fundraising purposes. Furthermore, state law does define that “futures or commodities trading” (stock market activity) is also legal.
As for poker home games, those are technically illegal in Tennessee, even if you are hosting a game without a rake of any kind. The state doesn’t have a carve-out for social gatherings. Of course, enforcing the law against poker home games is a logistical nightmare for any state. A misdemeanor charge and a small fine could be the result of playing in a poker game.
Tennessee did make an exception for March Madness brackets and fantasy football leagues played among acquaintances. In 2019, the state passed the March Madness and Fantasy Football Freedom Act, which allows for buy-ins up to $25 and prize pools up to $1,000. Only individuals were authorized to organize and conduct these social gambling pools.
Offshore, unregulated online casinos and poker platforms (and of course sportsbooks) service gamblers in Tennessee, even though they are in violation of state law. Tennessee will likely eventually consider expanding online gambling to include casino and poker in an effort to deal a blow to the black market. The operators of upcoming legal online/mobile sportsbooks in the state already have experience with online casino gambling, notably in Pennsylvania and New Jersey.
Through sports — first DFS, then March Madness brackets, and finally with traditional sports wagering — Tennessee has greatly reformed its anti-gambling position in recent years. While Gov. Lee is on record stating he doesn’t want to see any new forms of gambling approved during his tenure, the future looks bright for the Volunteer State when it comes to gaming. Lee, who took office in 2019, won’t be governor forever. Future policymakers will look to continue the state’s transformation.