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Tennessee Moving To ‘Un-Bungle’ Their Sports Betting Regulatory Framework

James Murphy
by in Gaming Industry on
  • Tennessee is working to clean up the regulatory mess of their sports betting industry.
  • Of particular note–a lower tax rate based on handle and not revenue and the elimination of the states’ insipid 10% mandatory minimum hold requirement.
  • Since launch, Tennessee has ranked as one of the worst sports betting regulatory frameworks in the world.

I’ve pulled no punches about Tennessee’s sports betting ecosystem, and with good reason. They initially gave sports betting oversight to the state’s lottery. That’s never a good idea, but Tennessee managed to screw things up to a downright staggering degree. Oddly enough, they’re one of the rare ‘lottery oversight’ states that has recognized the error of their ways. They’ve since transferred oversight of sports betting from the lottery bureaucracy to a newly created entity called the Sports Wagering Advisory Committee (SWAC). Better late than never, and now Tennessee is working to fix the lottery’s regulatory mess.

One component of this is a revamped tax structure. The working plan is to go from the current 20% tax on gross gaming revenue to a substantially lower tax on betting handle. The House version of the bill has proposed a 1.85% tax rate, the Senate a 2% tax rate. At first glance, this sure looks better than a usurious tax on gaming revenue though not as good as a realistic tax rate on a sportsbook’s hold percentage. Here’s how SBC Americas explained what it means:

Depending on how much sportsbooks hold each month, this new tax rate could be more or less than what they are paying currently. For example, if a sportsbook held 8% in a month and paid 2% on handle, they would pay 25% more in taxes via this new proposal than the old one. However, if a sportsbook held 10%, the two rates would be the equivalent.

And check out this quote–turns out that sportsbooks are having a hard time meeting the 10% mandatory hold mandate! Who would have guessed? Actually, this is obvious to anyone that knows anything about the realities of sports betting. It was the component of the original regulatory framework that sunk Tennessee from a garden variety overtaxed lottery run state to arguably the worst in the country at the time:

Depending on how much sportsbooks hold each month, this new tax rate could be more or less than what they are paying currently. For example, if a sportsbook held 8% in a month and paid 2% on handle, they would pay 25% more in taxes via this new proposal than the old one. However, if a sportsbook held 10%, the two rates would be the equivalent.

Tennessee’s Sports Wagering Advisory Council (SWAC) voiced concerns at a recent meeting about missing out on tax dollars from operators that failed to meet the prescribed hold mandate. SWAC Executive Director Mary Beth Thomas noted the state missed out on $11.6 million in revenue after the majority of operators failed to meet the hold threshold. She also indicated the operators were willing to come to the table for a legislative fix.

Credit to Tennessee for a) realizing that they made a huge mistake with lottery oversight and b) moving to clean up the mess. In a state where politicians get just about everything else wrong this is a stunning development. Sure, they’re probably doing the right thing for the wrong reasons–they want to focus on carrying water for the lunatic religious fundamentalists that have bought and paid for much of Tennessee’s government–but I have to take the victories where I find them.

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