Tennessee’s Sports Betting Law Becomes Effective, Regulations Forthcoming

On July 1, the sports betting bill that cleared the Tennessee legislature in May became effective, setting up the crafting of regulations.
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On July 1, the Tennessee sports betting law became effective, putting the state squarely in the regulation-crafting phase of the process. The state still needs to form an advisory council on sports wagering, mandated under the new law. From there, establishing the regulatory framework will take several months.

Regulations could be in place by the end of 2019, which would then lead to licensing and then testing of online/mobile platforms for bettors to use. Sports betting platforms approved by Tennessee will be geo-fenced, meaning that they will become inaccessible outside the state’s borders. Other state-of-the-art safeguards to prevent, for example, underage play will need to be tested as well.

Signs point to online/mobile sports wagering, the only form of the activity allowed under the law, to begin in the first half of 2020. Tennessee isn’t home to any casinos, so it’s unlikely the state can move at a breakneck speed to launch sports betting, unlike Iowa and Indiana, for example, which both legalized sports wagering this year and should have b&m sportsbooks open sometime this fall.

While the gears are in motion to implement the new law and bring an activity that exists underground into a regulated environment, at least one lawmaker in the state appears to be eyeing another piece of legislation to expand sports wagering into licensed brick-and-mortar locations.

Brick-and-mortar legislation?

The bill that passed the legislature and was returned by the governor without a signature once called for as many as 50 brick-and-mortar sports wagering locations across the state. During the committee hearing process, provisions for those retail locations were stripped from the bill. Negotiations with the governor resulted in the bill becoming online/mobile only, the first of its kind in the U.S.

There was plenty of resistance among state legislators with regard to removing the retail component of the sports betting plan, but the bill continued to gain momentum and it was agreed that the Volunteer State should be an early adopter, made possible by a May 2018 U.S. Supreme Court ruling that struck down the federal sports betting prohibition. The alternative was to kick the issue into 2020 and beyond.

With online/mobile betting in the pipeline, a lawmaker who co-sponsored House Bill 1, which ultimately became Public Chapter No. 507, is planning another bill once 2020 rolls around.

State Rep. Jason Hodges, a Democrat from Clarksville, Tenn., told Vols Wire in May that additional legislation could be considered in the upcoming legislative session.

“I would have liked to have seen brick-and-mortar make the cut as well, but we can keep pushing for that in the future,” said Hodges, who thinks another bill could be filed. “Hopefully this is just a first step.”

According to Hodges, local communities could benefit from property taxes associated with b&m sports wagering. “Local communities really depend on brick-and-mortar for real tax revenue,” he added. “The majority of their taxes come from property taxes.”

Local governments will see some money under the online/mobile legislation. Communities will receive 15% of the 20% tax on sports wagering revenues, to be distributed on a per capita basis.

Tennessee is projecting an annual sports wagering market of more than $254.6 mm (revenue not handle), which would translate to around $8 mm in total spread between local communities in the state. There are more than 340 municipalities in the state. On average, they’d receive around $20k each year.

In a fiscal note on the online/mobile sports wagering bill, it was noted that there’s “moderate access to high speed internet” in the state. The sports wagering market could be larger in the near-term with some b&m betting establishments. On the other hand, it’s worth noting that New Jersey sees more than 80% of the handle coming via the internet. Retail wagering is expected to lose more of its share of the pie as the sports wagering industry matures and continues to innovate with betting options, such as in-game wagering.

In an effort to offset the impact of less-than-ideal internet access, Tennessee is planning for around 3.5 mm of its annual tourists to participate in sports wagering.

Governor says he’s opposed to more legislation

The brick wall that Hodges and other lawmakers would more than likely run into with a bill to expand sports wagering is Gov. Bill Lee, a first-term Republican. Lee indicated his distaste for gambling during a debate ahead of the election last year, and he has mostly been unwavering in his position, despite allowing the online/mobile bill to become law.

Lee declined to give the bill his full-fledged endorsement.

“I am letting HB 1 become law without my signature,” Lee said in late May. “I do not believe the expansion of gambling through online sports betting is in the best interest of our state, but I appreciate the General Assembly’s efforts to remove brick-and-mortar establishments. The bill ultimately did not pursue casinos, the most harmful form of gambling, which I believe prey on poverty and encourage criminal activity.”

There’s more.

“Compromise is a central part of governing,” Lee continued in his statement, “but I remain philosophically opposed to gambling and will not be lending my signature to support this cause. We see this issue differently, but let me be clear: any future efforts to expand gambling or introduce casinos to Tennessee will assure my veto.”

The odds are long that Hodges and his colleagues would be able to advance a measure until Lee is out of office. It’s certainly possible that Lee’s comments, which came after the ones Hodges made to Vols Wire, could stop discussions of another sport betting bill dead in their tracks.

There’s also been speculation about a federally regulated tribal casino in Eastern Tennessee, which would likely be equipped with a sportsbook if it’s ever built. Lee would surely also oppose that.

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