A review of newly disclosed documents from Tennessee’s legal sports betting regulator reveals a three-way dead heat for top market share in terms of betting handle generated in the Volunteer State. But money talks, and BetMGM has separated from the pack with nearly double the revenue of the other leaders, DraftKings Sportsbook and FanDuel Sportsbook.
Of the four licensed operators to go live in Tennessee on Nov. 1, 2020, those three have navigated to neck-and-neck position for total handle generated, each of them taking about $70 million in wagers in January 2021 when the NFL Playoffs were underway, and the NBA, NHL, and NCAA college basketball regular seasons reached full swing.
Between Nov. 1, 2020-Jan. 31, 2021, the state took in nearly $10 million in tax revenue ($9,743,918).
Tennessee Action 24/7 took in $2.3 million in handle over the three months, or about 1% of the market leader. The locally owned sportsbook, which shares ownership with a sprawling business that deals in 279.5% interest “flex loans,” is seeking to leverage local relationships and the hometown vibe to reduce acquisition costs. Tennessee Action 24/7 had a higher hold than some of its competitors (more on below) and revenue of $194,000 in the first quarter.
The Tennessee Education Lottery Corporation (TELC) made the financial disclosure in response to Sports Handle’s public records request. The Tennessee Sport Gaming Act of 2019 and the TELC’s regulations require only a bare monthly report indicating collective total handle and total gross gaming revenue produced by the sportsbooks combined. This contrasts with some other states, such as New Jersey, Nevada and Indiana, where regulators issue reports showing in detail how each sportsbook is performing, also breaking out wagers on individual sports.
BetMGM: Goal is ‘to be a leader’
The scorecard will be welcome news for BetMGM’s digital teams, whose officials have acknowledged FanDuel’s and DraftKings’ overall leading positions in the U.S. sports betting market, as BetMGM is stalking in third (and William Hill is in the leading pack as well).
BetMGM and Entain’s CFO Rob Wood this week remarked that Flutter-owned FanDuel has “sewn up in 2021.” Asked if he was satisfied with a third-place position, Wood said “Definitely not, no. We always set out to be a leader with ambitions of getting to No. 1 in due course, but there is no doubt that FanDuel has comfortably got No. 1 sewn up for a while.”
“If you look at the latest numbers, we’re really not that far behind DraftKings once you take out their DFS business, so we absolutely have No. 2 set in our sights,” Wood added in an interview with EGR Intel (subscription).
The most recent earnings report indicates that DraftKings’ marketing and acquisition expenses continue to expand its net losses, at least in the short-term.
Keep an eye on that hold percentage
One subplot throughout the regulation-writing process in Tennessee concerned a controversial requirement that sportsbooks pay out no more than 90% to bettors. Alternatively, that’s a required hold percentage of at least 10%, which is three points higher than the approximate national average of 7%.
FanDuel and DraftKings at the annual quarter poll have checked in at 6.95% and 6.24% hold rates, respectively. Our understanding is that the handle and revenue figures include promotional and free wagers. Because the penalty for failing to meet the mandatory minimum is nominal, a fine of about $25,000 for now, it’s unclear if the two will seek to fall in line.
There is legislation in Nashville that could change sports betting fines, and the regulatory agency has been considering how often (annually, monthly, for each infraction) to impose the $25,000 fine for not meeting hold, but no decision has been made. According to a compliance directive, operators don’t have to “true up” on hold until Dec. 31, 2021, and as such, regulators are taking their time discussing and weighing the issue.
Meanwhile, BetMGM is well above the target with a 14.19% hold after three months. Perhaps the book is giving away fewer free bets, or simply driving more action toward parlay wagers, which typically net about a 30% hold. Tennessee Action 24/7 had a three-month hold of 13.05%.
There is more competition on the way in Tennessee, as the TELC recently granted licenses to WynnBET Sportsbook, Churchill Downs’ Twinspires, and William Hill sportsbook. All three are still awaiting a green light to go live. A launch before the NCAA men’s basketball tournament would be welcome, as the tournament’s Selection Sunday will take place this weekend.
A good analogue for the Tennessee market is Indiana, which first opened in 2019 and online sportsbooks hitting the digital airspace in September of that year. The betting handle and corresponding revenue has grown steadily since, rising to a single-month record in January 2021 of $348.2 million, contributing to another record for monthly revenue at $29.3 million.
That’s a likely trajectory for Tennessee, perhaps on the horizon when the college football season begins in late August.
But the addition of sports gambling in the Volunteer State has not come without regulatory violations and hiccups, as the TELC investigators found in mid-February “significant anomalies” at two sportsbooks around the Super Bowl, resulting in the permanent closure of 74 player accounts. The agency did not provide any additional details about the violations.