Tennessee Wrestling with Hold Problem

As the Tennessee sports betting market goes through its first few weeks of operation, betting providers have been wrestling with the issue of the state’s hold figure. 

According to the state’s betting rules, all operators in the sector have to hold a minimum of 10% of their betting handle. Failure to reach that figure by the end of every calendar year will lead to fines that could be as high as $25,000. In addition, the Tennessee Education Lottery, which is charged with oversight of sports betting in the state, has the powers to impose additional penalties. 

Bonus Loophole

One of the issues operators are wrestling with is the potential for a loophole involving bonuses. The rule on minimum hold refers to ‘revenue minus aggregate annual payout.’ This doesn’t make it clear whether the payout is to include bonuses and promotions. Elsewhere in the rules, revenue is defined as ‘adjusted gross income,’ which does not include bonuses. 

That would appear to suggest that operators are free to offer as much money as they like in promotions and bonus offers, without this figure affecting their hold rate. 

Bad News for In-Play

In normal circumstances, operators would be forced to offer normal 50-50 markets at odds of -125 to be able to maintain the 10% hold level. That level of pricing would make it hard for sports betting companies in Tennessee to compete with rival operators in neighboring states and in the illegal betting sector, as the industry standard is around -110 for a 50-50 market. 

The likely result is that sportsbooks will seek to make up the difference during in-play markets. It is a lot harder for bettors to compare the various in-play odds during a sports event, and in addition, in-play sports betting is a relatively new area for US betting fans. There may also be some impact on futures markets with multiple options, where it is harder for customers to weigh up the overall vig, and bettors can expect to be bombarded with parlay bet offers. 

Limiting Accounts

Tennessee’s high hold figure could also have the effect of encouraging betting operators to shut down accounts that appear to be loss-making and to limit bets. Across the US, sportsbooks are generally happy to take on a break-even or small loss-making accounts, but those bettors will be bad news for Tennessee operators focused on their hold. 

At the same time, other operators have shown it is possible to operate with a relatively high hold. For instance, in the UK, SkyBet showed a hold rate of 14.7% in the first half of the year, after bonuses had been accounted for. That may have been partly down to bettors betting on sports they were less familiar with during the lockdown, but it also reflects a client base that leans heavily on parlays. 

A Next Year Problem

For the time being, the hold issue will not have a big impact, as it will not apply to 2020 figures, but from next year, operators are going to have to decide how they approach it. 

One option could be to seek legal remedy, arguing that a hold rate of under 10% was due to unforeseen circumstances, although this approach would appear to hinge on how leniently the Tennessee Lottery approaches the issue. An alternate option could be for sportsbooks to take the hit and pay the $25,000 fine, seeing it as a relatively small price to pay. 2021 is set to be a fascinating sport betting year in Tennessee.