Tennessee Still Mulling ‘Difficult And Controversial’ Sports Betting Payout Cap

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NASHVILLE — The Tennessee Education Lottery Corporation and its Sports Wagering Advisory Council met Tuesday afternoon to discuss the finer details of how the internet sports betting law enacted in 2019 will be implemented and lead to sportsbook launches.

The stakes were high as the nascent U.S. sports betting industry and many industry observers had a lot of constructive criticism for the draft rules that were released in late November. The TELC took feedback from the industry and members of the Advisory Council, as well as the general public, for a handful of weeks before releasing a lengthy summary of the comments, also on Tuesday.

Tennessee is the first state in the country to wade into the sports betting waters without any retail component. The state doesn’t have any casinos or racinos. The TELC will regulate the activity, licensing operators and some of the companies they do business with.

‘We sell integrity’

Rebecca Hargrove, CEO of the TELC, started the meeting off by reiterating the agency’s mission after nearly 200 people or groups submitted written feedback on the proposed regulations. One single submission was 100 pages, Hargrove, a veteran of the lottery industry, said.

“We are celebrating out 16th anniversary soon and our goal was integrity,” Hargrove said. “In those 16 years we have worked diligently to protect the dollars that we raise [for education]. Following the [sports betting]statute is important. We don’t sell a product, we sell integrity.”

Thanks to the complexity of the process, Hargrove announced that the TELC has established an informal “subcommittee” on sports betting, which is comprised of lottery board members. The subcommittee will not vote, but it will assist the Advisory Council in making recommendations. It’s another layer for vetting the regulations before potentially adopting them next month.

The TELC and its Advisory Council will reconvene on Feb. 19 with the plan to finalize the regulations after more fine-tuning, Hargrove said. She added that the TELC has fielded questions on a daily basis about when sports betting will be live in the Volunteer State. There’s still no timeline.

Hargrove added that no sports betting applications have been submitted yet.

Feedback on comments

Sports Wagering Advisory Council member Thomas Lee, a lawyer in Nashville, brought up the concern from many in the gambling industry that Tennessee might elect to go with a single licensee for sports wagering. It costs $750k annually for the ability to offer legal sports betting.

“We are asked to be advised on rules,” Lee said. “For us to be effective and valuable … we can get a clear sense of how the state imagines [the industry]. There appears to be many ways of doing this. What do these rules govern? If that gets built as we fly it, that’s good to know. If there’s something else the corporation has in mind … For example, do we anticipate we’ll have one licensee? New Hampshire has done that. Do we anticipate we’ll have multiple licensees?”

Lee added that the sports betting bill didn’t soar out of the Tennessee Legislature and Governor Bill Lee didn’t sign it but rather let it become law without his John Hancock. The governor was wary of expanding gambling and is fiercely opposed to casino gambling.

Hargrove didn’t say explicitly that the TELC will license multiple sports betting companies, but she said in response to Lee that “the statute clearly anticipates multiple licensees” and the TELC’s “business plan is the statute.” She added that in the case of New Hampshire, the state lottery is technically the operator.

During the legislative process, policymakers were anticipating 10 sports wagering operators. It’s unclear how many will apply, as it could very well depend on the finalized regulations. The state is expecting a sports betting market worth more than $250 mm annually.

Controversial 85% payout cap

Arguably the most debate on Tuesday centered on the current proposed regulation of capping the annual aggregate payout to bettors at 85%. That would be lower than the roughly 93% in New Jersey in 2019 and the roughly 92% seen in Pennsylvania. Neither of those legal states regulates sports betting through its lottery and their percentages aren’t fixed. A typical sportsbook has annual hold of 5-7% , for a payout of 93-95%, a figure that bettors have come to expect.

Hargrove said that the main reasoning behind the cap was to increase competition in the industry.

“We’ve been studying this,” she said. “There are a number of ways to look at it. It might be a three-year rolling aggregate. You can control that by the number of parlay wagers, etc. There are a number of ways to look at it. Almost every state has a mandate capping lottery prizes, but to this point almost everyone in the U.S. is operating [sports betting]through casinos. Most of the lotteries operating sports betting go through casinos. Seventy percent of the legal sports wagering in the world comes through lotteries. The highest cap we could find was 85%. If you look globally, most of them cap it for a range of reasons.

“Let’s just say, some [sportsbook]wants to pay out 101% for six months to capture market share and be the last one standing. The big guys can do that because they can be in it for the long haul. Maybe 85% isn’t the right number. Maybe it’s higher than that. Everyone [should]be on the same playing field. I think it’s important to protect the dollars that are raised [for the state]. It’s important to protect the small guys. We have been told there will be some Tennessee companies to apply as licensees. It provides a guarantee that there will be some income for the programs that are supposed to be funded. It is a best practice globally.”

Susan Lanigan, chair of the Board of Directors for the TELC, said the capped payout rule is “difficult and controversial,” but she said that it would be much easier down the road to remove or raise the cap than to put one in place after legal sports wagering launches.

Lee countered the argument with the notion that neighboring states could have sportsbooks with better prices for consumers, and Tennessee might be at a disadvantage with a payout cap such as 85%.

Lanigan added that the rules “won’t be perfect” and that members of the TELC “aren’t experts” on sports betting, with Hargrove saying that she’s hoping to get consensus on the rules ahead of the Feb. 19 meeting.

While many rules still need to be deliberated, there was one major change that everyone involved with the regulatory process appeared to agree on Tuesday: Pushes in parlay bets should not make the entire parlay a loss, which is not industry standard. The draft of the sports wagering rules stated that a push in one leg of a parlay would ruin the entire bet. Hargrove said the TELC will fix this.

“I think we got that one wrong,” Hargrove said.

Image credit: Shutterstock

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Brian Pempus

Brian served as a senior reporter and online content manager for Card Player Magazine for nearly a decade before joining USBets in October 2018. He is currently focused on legal and regulated sports betting and online gaming. He's an avid jiu-jitsu practitioner in his free time.

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