Regulatory Agency Poised to Assume Oversight of Sports Betting in Tennessee

Exclusive: Executive Director of SWAC says sports betting rules, TN’s controversial 10% hold should be topics of discussion at public hearing on February 10.
Regulatory Agency Poised to Assume Oversight of Sports Betting in Tennessee
December 14, 2021

Less than 20 days before a new regulatory agency takes the reins for online sports betting in Tennessee from the state lottery, the agency’s top official says the transition has been “timely and smooth” so far.

In an exclusive, Mary Beth Thomas, Executive Director of the Sports Wagering Advisory Council (SWAC), added that Tennessee’s controversial 10% hold should be a topic of discussion at a public hearing on February 10, when a draft version of permanent rules governing the state’s gaming regimen will be up for discussion. And if the hold isn’t reduced following the hearing, the legislature could ultimately take action, she said.

“The process of transitioning regulatory authority from the Tennessee Education Lottery (TEL) Corporation to the SWAC has gone well,” Thomas told US Gaming Review. “We have been busy with hiring staff, drafting and revising rules, meeting with the Lottery to understand all of the details of their prior operation, and preparing to have our licensing, reporting, and compliance functions up and running on January 1.

“We have spent countless hours transitioning all of the various components of the regulatory operation — from paper files to the financial reporting/accounting system. I am confident that we are on track to make both a timely and smooth transition on January 1st.”

Lawmakers Reverse Course

Online sports betting in Tennessee came into existence after lawmakers in the state General Assembly passed HB 1, aka the Tennessee Sports Gaming Act, during their 2019 session. In a twist, an amendment to HB 1 removed a provision to create a gaming commission under the Secretary of State. Lawmakers instead gave oversight of sports betting to TEL, with SWAC serving a purely advisory role.

Although Republican Gov. Bill Lee was opposed to the legalization of gambling, he decided not to interfere with the legislature and let the bill become law in May 2019. When the market went live on November 1, 2020, it had four operators: BetMGM, DraftKings, FanDuel, and Action 24/7, a Nashville-based startup.

But this year, lawmakers revisited the question of who should be calling the shots with sports betting. Under SB 588 — which passed the General Assembly and was signed by Lee into law in May — SWAC was empowered to run online sports betting and to promulgate rules governing the practice. SB 588 also stipulated that SWAC would assume oversight on January 1, 2022.

SWAC approved emergency rules for sports betting at its meeting on December 2. The rules will be in effect for 180 days, until June 30, 2022, at which point the agency must enact a set of permanent rules for the industry.

Thomas said the emergency rules were currently being reviewed for a final time by Tennessee Attorney General Herbert Slatery III.

“We do not anticipate any changes, other than perhaps a typographical change or two,” Thomas said. With the emergency rules set to expire in June, she said SWAC is “starting on a permanent rulemaking process. We will have a public hearing on February 10 to receive additional public comments on the draft permanent rules — which, at this time, are identical to the emergency rules.”

Thomas acknowledged that some operators, including BetMGM, Caesars, DraftKings, FanDuel, and TwinSpires, have been critical of the 10% hold first established by TEL but was left intact in the emergency rules set to take effect under SWAC.

“Any changes to the rules, including the 10% hold, would need to take place as part of the formal rulemaking process under the Uniform Administrative Procedures Act,” she said. “This process involves receiving and considering public comment, holding a rulemaking hearing [on February 10] and thereafter adopting and filing a permanent set of rules. The legislature also reviews all rules as part of its oversight function through the Joint Government Operations Committee.”

More Operators Joined in 2021

Four additional sportsbooks have since launched in the Volunteer State.

William Hill launched its sportsbook in Tennessee on March 11, but it was rebranded as Caesars Sportsbook in early August. TwinSpires and WynnBET launched sportsbooks on March 18 and April 30, respectively, while social media shows Barstool Sportsbook went live on September 8.

A ninth sports betting license has also been approved, but the operator has not yet taken bets. Wagr, a social sports betting platform, was awarded a license on August 31, according to The Tennessean. Wagr is reportedly backed by Seven Seven Six, a venture capital firm founded by Reddit co-founder Alexis Ohanian, as well as the Manning brothers and Tinder co-founder Justin Mateen.

DraftKings operates under a direct mobile license with the Tennessee Lottery. It also announced a partnership in August with Sports & Social (S&S) to open a high-end sports bar in Nashville.

Operators have wasted no time in forging partnerships with the professional sports teams in the state to boost their brands. BetMGM Sportsbook clinched a partnership with the NFL’s Tennessee Titans in September 2020, while FanDuel Sportsbook did likewise with the NBA’s Memphis Grizzlies in November 2020 and DraftKings teamed up with the NHL’s Nashville Predators in December 2020.

A Record Handle in October

Tennessee’s online sports betting market has been strong since its inception in November 2020.

Bettors from the Volunteer State wagered $2.3 billion during the first 12 months of the market, according to TEL data. Sportsbooks have collectively generated nearly $205.5 million during that time frame. The handle reached a record $365.3 million in October, the most recent month with figures available.

But the market’s opening months haven’t been without controversy.

Last March, TEL suspended the license of Action 24/7 after an investigation found evidence of possible credit card fraud, money laundering, and proxy betting for out-of-state bettors. According to the website Legal Sports Betting, Action 24/7 became the first sportsbook of any kind in the US to have its license suspended since the Supreme Court declared the Professional and Amateur Sports Protection Act (PASPA) unconstitutional in 2018.

Later that month, a state judge ruled that TEL didn’t follow due process when it suspended Action 24/7’s license and ordered the agency to reinstate it. The sportsbook remains live.

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