Tennessee’s controversial 10% hold rule isn’t going away any time soon.
The Tennessee Sports Wagering Advisory Council’s rulemaking committee met Friday to discuss emergency rules and agreed to a set of recommended rules to bring to the SWAC at its next meeting, which will likely be in early December. The goal is to have the emergency rules approved by the time the SWAC takes over regulatory duties from the Tennessee Education Lottery on Jan. 1.
The hold provision, which requires sports betting operators to “win” at least 10% from bettors as their gross revenue “hold” or face a penalty, is part of the recommended emergency rules. The national average for hold is 7%, meaning that operators keep an average of $7 per $100 wager after the bettor is paid. Operators must then pay taxes, employees, and other expenses from that. The hold requirement is part of the current regulations, which were put in place by the Tennessee Education Lottery Corp. ahead of the Nov. 1, 2020, launch of sports betting.
“I think all of us acknowledge it’s something that is unique to Tennessee,” Tom Lee, SWAC member and rulemaking committee chair, said during the meeting. “That may not scare everybody on the council as much as it understandably creates some heartburn for the regulated community.”
Operators don’t like it, but tough
The committee isn’t in any rush to remove the hold requirement despite clear opposition from operators. Tennessee is the only U.S. jurisdiction with such a requirement, and it’s been controversial among operators from the outset.
“We think it is important to ensure, at least for now, that we continue this hold in place so that we can ensure, frankly, revenue stability to the state,” Lee said.
Operators recently argued that the 10% hold is to the detriment of state tax revenue, but the SWAC rulemaking committee seemed more interested in the penalty structure for operators failing to reach the 10% hold rather than a discussion about abolishing the rule.
In Tennessee, operators say the 10% mandatory hold forces them to offer worse odds, pushes handle and tax revenue down, and allows the black market to thrive.
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The lottery interpreted the law to mean that the $25,000 fine should be assessed annually, and it reviews operator reports once a year. The lottery board discussed making the reviews and fines quarterly, but it did not come to a consensus. The SWAC started a similar conversation, but the rulemaking committee agreed the proposed change wasn’t in the best interest of the operators, so the annual fine structure will remain in the recommended rules.
Additionally, the rulemaking committee added another way for operators to accept a penalty. Instead of paying a $25,000 fine annually, operators could instead pay a privilege tax payment equal to the difference between what they would’ve paid had they adhered to the 10% hold and what they actually paid.
“I think it’s a great compromise between the stakeholders that have come to the table to have a conversation,” Kandace Stewart, a member of the rulemaking committee, said during the meeting.
Next steps and other changes
Once the emergency rules are approved, they’ll go into effect for 180 days. During that time, the SWAC will work on permanent rules. Those can be amended as needed, although the permanent rules are expected to be similar to the recommended emergency rules.
The rulemaking committee didn’t completely rule out the idea of addressing the 10% hold and penalty structure again in the future.
“We definitely have an opportunity, if necessary, to come back and take a look at it again once we see how it’s working for all parties,” Stewart said.
The rulemaking committee also discussed official job duties for Mary Beth Thomas, SWAC’s new executive director, and recommended that national gambling addiction hotlines — in addition to local agencies — be allowed to advertise their services in Tennessee.
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