Tennessee Sports Betting Roars to Life in November

Mobile sports betting launched in Tennessee on November 1st and hit the ground running, with the state’s four licensed sportsbooks generating more than $131 million in handle over the month.

The Tennessee Education Lottery (TEL) reported this week that mobile sportsbooks took $131,444,523 in wagers from November 1st through the 30th. Of that amount, Tennessee sportsbooks paid $118,219,615 in winnings to customers and $2,363,918 in state taxes.

With those numbers, Tennessee set a new record for the most wagers ever taken in a state’s first month of legal sports betting. Tennessee’s fast start was aided by the simultaneous launches of four mobile sportsbooks on the first of the month during a busy time of the year with the NFL in full swing.

TEL President and CEO Rebecca Paul Hargrove lauded the figures but stopped short of extrapolating the market’s potential from a single month’s revenue figures:

Our first month of sports wagering in Tennessee comes at a unique time in the world, let alone the sports world. November’s figures include adjustments and indicate potential. It is only one month in an unpredictable and extraordinary year, making it difficult to begin extrapolating out from this single month. As this new industry in Tennessee evolves, we will continue to work with licensees and registrants in support of a responsible and competitive sports wagering program.

Tennessee Results Highlight the Impact of Mobile Betting

When Tennessee legalized mobile betting in 2019, it did so as the first state to pass a law authorizing mobile sports betting only. Some other states have enacted legislation authorizing retail sportsbooks only, but none have established an online betting market that is completely untethered from land-based interests.

Tennessee’s fast start highlights just how important it is to legalize online betting if states wish to maximize tax revenue. In states with retail sportsbooks and mobile betting, mobile sportsbooks account for 80% or more of total handle every month.

Monthly sports betting handle is consistently lower in states that have authorized retail sportsbooks only versus states that permit online betting. No state that limits sports betting to retail sportsbooks has ever had a month as big as Tennessee’s first month.

By comparison, multiple states with legal online betting routinely see monthly handle exceed $100 million. Illinois, Colorado, Indiana, Pennsylvania, and New Jersey generated $231 million or more in betting handle in each state’s last reporting month.

Mandatory Minimum Hold Provision Kicks in Soon

The Tennessee sports betting law is mostly industry-friendly and good for bettors. State law permits any number of online betting operators to apply for licenses to offer their services in Tennessee. With no tethering requirements in place, there is no artificial limit on competition.

Licensing fees and tax rates are reasonable, which is also conducive to a vibrant and competitive industry that benefits bettors.

However, Tennessee has one unusual rule in place that could act as a dampener. A provision in the Tennessee law that requires operators to pay back no more than 90% of wagers as winnings kicks in on January 1st, 2021.

The provision states, “the annual aggregate payout to bettors must not be greater than 90%” of total handle. That means if sportsbooks generate $100 million in handle, they cannot pay back more than $90 million to customers in the form of winnings.

In other open market states that do not have minimum hold requirements, sportsbooks tend to keep an average hold in the neighborhood of 5-7%. The mandatory hold in Tennessee is almost double that.

The question moving forward is how sportsbooks will ensure they do not exceed the 90% payout threshold and how customers react to any changes sportsbooks make in the new year.

Yet another question is whether sportsbooks will even abide by the rule. The mandatory hold provision calls for a fine of up to $25,000 for operators that do not comply. That might be a cost some operators are willing to eat if the TEL Board decides not to exercise its authority to “impose additional recourse for failure to comply with this directive.”

Tennessee sportsbooks achieved an 89.9% hold in their first full month of operation, almost exactly the mandated hold requirement even though the provision was not in place in November. However, operators in other states have seen their average holds revert to an average in the range of 5-6% after the initial rush of new sports bettors.

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