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How Sports Betting Is Regulated In Tennessee

Up until 2018, sports betting in the United States was only completely legal in the state of Nevada. This all changed when the Supreme Court overturned PASPA (the Professional and Amateur Sports Protection Act) in May 2018. Individual states regained the power to determine whether to legalize sports betting when PASPA was struck down, paving the way for multiple states around the country to begin accepting legal wagers on sporting events. Tennessee joined the list of states to legalize sports betting in 2019.

The legalization of sports betting on a state-to-state level could prove to be a win-win situation for states and citizens alike. Residents of states like Tennessee that have legalized sports gambling can now safely bet on sporting events with state-regulated sportsbooks instead of with bookies or unregulated offshore accounts. And in turn, states can collect taxes on this popular pastime that can be reinvested into areas of need.

PASPA made sports betting illegal around the USA in 1992

The Senate Judiciary Subcommittee on Patents, Copyrights and Trademarks held public hearings on sports gambling on June 26, 1991. The subcommittee found that “sports gambling is a national problem. The harms it inflicts are felt beyond the borders of those States that sanction it.” As a result of these findings, congress enacted Senate Bill 474, the Professional and Amateur Sports Protection Act in 1992.

PASPA grandfathered in the four states that had already legalized some form of sports betting: Oregon, Delaware, Montana and Nevada. Nevada was the only one of the four states that had legalized single-game wagering and the other sports betting types like futures and proposition bets. The other three only ran sports pick pools and sports-themed lotteries. So from 1992 to 2018, Nevada completely dominated the legal sports betting market in the United States.

Sports betting is a multi-billion dollar business

A report done by UNLV’s Center for Gaming Research revealed that the total amount bet on sports in Nevada from 1984 through 2018 was roughly $77.25 billion. And this number only covers sports bets that were placed legally in the state over this time, a tiny fraction of the actual amount bet on sports around the country through other means like illegal bookies and offshore sportsbooks.

Offshore sportsbooks are sportsbooks that operate in other countries in which sports gambling is legal. These countries include Antigua, Costa Rica, Panama, and others in Central America, South America and Europe. Federal laws like PASPA, the Wire Act of 1961 (which prohibits interstate or foreign wire exchanges that will be used to place bets), and the Unlawful Internet Gambling Enforcement Act of 2006 cannot easily be enforced by the United States on sportsbooks owned and operated outside of the country.

With no legal options outside of Nevada available to them due to PASPA, residents across America in all 50 states including Tennessee took their sports betting business to these offshore sportsbooks. The American Gaming Association estimates that Americans wager over $90 billion a year during the NFL and NCAA football seasons and over $10 billion a year on NCAAB bets during March Madness. Up until recently, all of these billions of dollars were being sent overseas as there were no legal and regulated options available to Americans outside of Nevada.

New Jersey paved the way for the repeal of PASPA

New Jersey began its long fight against PASPA in March 2009 when state Sen. Raymond Lesniak filed a lawsuit in the United States District Court for the District of New Jersey. The lawsuit claimed that the Professional and Amateur Sports Protection Act was unconstitutional in discriminating against 46 states while allowing four to offer sports betting. The case was eventually dismissed as the court ruled that only then-Gov. Chris Christie could bring the suit. Christie decided not to file this suit as he believed the law would be too difficult to challenge.

Christie’s tone changed after a 2010 referendum in New Jersey to legalize sports betting in the state passed by an overwhelming margin. With the state’s residents showing clear interest in the legalization of sports betting, New Jersey passed a law that would allow sports gambling at licensed locations in 2012. The state did so knowing that this was in direct conflict with PASPA and that there would be a long legal battle ahead.

The NFL, NBA, MLB, NHL and NCAA all came together to fight New Jersey’s new law on the grounds that it was in violation of PASPA. The District Court ruled in favor of the leagues, but New Jersey appealed this case to the Supreme Court, asking that PASPA’s legality under the 10th Amendment be investigated. The Supreme Court agreed to take the case in June 2017.

In May 2018, the Supreme Court ruled that PASPA was unconstitutional as it violated the 10th Amendment in commandeering power away from the states. This landmark decision paved the way for regulated sports betting to any state that decided to legalize it.

States like Tennessee control their own sports betting regulations

Perhaps someday the federal government will step in to determine nationwide regulations on sports gambling. But for now, the repeal of PASPA simply puts all of the decisions when it comes to sports betting regulations in the hands of the individual states. Every state that has legalized sports gambling to date has done so with its own set of laws and regulations.

Tennessee residents who were anxiously awaiting the arrival of legalized sports gambling in Tennessee learned the hard way that ironing out these sports betting regulations and rules is no easy feat. The state passed a law to legalize sports betting in May 2019, but it took nearly a year for the Tennessee Education Lottery to finalize legislation in April 2020 that would make regulations official and open a path for interested parties to begin filing applications.

Sports betting regulations in Tennessee

Online betting only

Tennessee became the first state to legalize sports gambling in an online-only format. Some states that have legalized sports betting don’t have online or mobile gaming at all, only accepting wagers in licensed physical locations such as casinos or horse tracks. Others have a hybrid of both in-person and online sports betting. Tennessee will not have any in-person sports betting locations and will operate entirely through sportsbooks that apply for and are approved for a license to legally accept wagers within the state.

Unlimited licenses available

Tennessee’s regulations also set no limits on how many online sportsbooks can enter the marketplace. Any sportsbook willing to pay the $800,000 fee to acquire a Tier 1 operator license ($750,000 for the license and $50,000 for the application fee) can do so upon approval, regardless of how many other sportsbooks are currently operating in Tennessee.

Esports will be recognized as professional sports

Interest in esports (professional video games) has risen immensely in recent years. But despite clear interest in esports events in America and around the world, a consensus still hasn’t been reached on whether esports should be classified as a sport. This lack of consensus has carried over into sports betting regulations, as some states have chosen to allow wagering on esports while others have banned the practice. Tennessee has elected to allow sportsbooks in the state to accept bets on esports.

Limitations on college sports betting

Tennessee sportsbooks will face no limitations on accepting bets on games involving professional sports leagues like the NBA, NFL, NHL, MLB and MLS. That is not the case with college sports, however, for which TN sportsbooks will only be allowed to accept wagers on standard game lines. “Individual actions, events, statistics or non-occurrences” in college games cannot be wagered on. That rules out live betting and prop betting on college sporting events. Tennessee will also not allow bets on minor-league games.

Another sports betting regulation that operators in Tennessee won’t be too happy about is the 20% tax rate on gross revenue. This rate is sky-high in comparison to other state tax rates, which usually fall within the range of 7-15%. But while this tax rate could be a deterrent to sportsbooks considering making their way into the Tennessee market, it’s the state’s unprecedented 10% mandatory hold that figures to significantly hinder the potential of sports betting in Tennessee.

Tennessee’s 10% sports gambling hold could severely hamper business

How it works

Tennessee is requiring a 90% payout cap on money wagered on sports in the state. In other words, regardless of the outcomes of the events, sportsbooks cannot pay more than 90 cents for every dollar that they take in. No other state has a mandatory hold like this on sports wagering. Worse yet, according to gambling law attorney Daniel Wallach, the state of Nevada has never reached a 10% hold organically at any point in the last 35 years. The highest hold Nevada ever earned was 7.89%.

Why this is a problem for Tennessee

To achieve the mandatory 90% hold that Tennessee regulations require, sportsbooks are going to have to get creative. Popular bets like multi-team parlays that offer bettors the chance to win big paydays for a small risk might have to be limited or capped as Tennessee sportsbooks can’t afford to pay out too much. Similarly, future odds on championships might also not be available on long shots that put the book at risk of losing a large amount.

Games involving local favorites will become problematic for Tennessee sportsbooks as well. If the Tennessee Titans or Nashville Predators get on a winning streak with tons of Tennessee residents backing them, the mandatory hold could be in jeopardy. Sportsbooks may be forced to not offer lines on certain games, or to charge a premium for popular sides.

This setup is terrible for both sportsbooks and players alike. If sportsbooks can’t offer great lines and high potential payouts to their customers, how are they going to compete with illegal offshore books that can? Sports fans who want to go about betting on sports the legal way could be punished for doing so due to a bad system forcing sportsbooks to act this way.

And where does that leave Tennessee? With fewer sportsbooks interested in doing business in the state and fewer residents interested in signing up for these sportsbooks. This leads to less overall revenue and less money earned in taxes. Tennessee lawmakers unfamiliar with the sports gambling business may have thought a 10% hold looked fair on paper when they approved it, but in reality it doesn’t make a whole lot of sense in this industry.

Hope for the future

Fortunately, the Tennessee Education Lottery Board put into place a plan to re-evaluate Tennessee’s sports betting regulations after one year of legal wagering. That means some of these rules, including this seemingly disastrous 10% hold, could be revisited and changed in the future. If this hold is ever removed, Tennessee residents should see an immediate spike in online sportsbooks entering the market and more betting options on their favorite sites being made available.

Regulated sports betting is far safer

There are some great, reputable offshore sportsbooks out there that offer their services to residents of the United States. But playing at these sportsbooks comes without any safety net or regulations. If an unregulated sportsbook seizes the funds in your account or refuses to make a payout, you don’t have any recourse. The same loophole that allows that site to exist in the first place with immunity from United States laws also leaves you unprotected. When you play at legal sportsbooks in Tennessee, you know that your account is safe and government-protected. Nothing beats having security and peace of mind when it comes to your money.

There are currently no regulations in place in Tennessee for problem gambling, but there are national resources available for you if you or someone you know has a problem with gambling. These include the National Gambling Hotline at 1-800-522-4700 and Gamblers Anonymous at gamblersanonymous.org. Both are available 24/7.