Tennessee Lawmakers Want to Know Sports Betting Operators Revenue

Tennessee Lawmakers Want to Know Sports Betting Operators Revenue
Fact Checked by Michael Peters

Less than a year after the Tennessee General Assembly radically changed how the state collected sports betting tax revenue, some lawmakers are raising questions about how much information is being made public.

The state’s Sports Wagering Council presented its budget request to a House committee last week, and the hearing gave members a chance to ask SWC Executive Director Mary Beth Thomas about the data the 12 licensed Tennessee sportsbooks provide.

Last May, legislators passed Senate Bill 475. While the new law included a couple reforms to the state’s sports betting rules and regulations, the key change within it made Tennessee the first state in the nation to tax sports betting operators based on handle — the amount of money wagered by bettors — rather than the revenue they generated.

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‘Transparency Is Important’

Since July, the state has levied a 1.85% tax on the handle, replacing the 20% tax on the amount operators won, which was part of the initial Tennessee betting apps law passed in 2019. When the change was made, the SWC changed its monthly reporting to reflect the new law. Previously, the agency reported the total handle, bettors’ winnings, operators’ adjusted gross revenue and the tax collected.

After SB475, the council now reports the total amount of wagers and adjustments made to that because of canceled bets to produce a gross handle. Then, the SWC reports the tax amount paid by operators. The removal of operator revenue from the report led to state Reps. David Hawk, R-Greeneville, and Larry Miller, D-Memphis, inquiring whether the council had that data available.

“I’m wondering if it would be informative to this body to know exactly how many dollars are leaving Tennessee through taxpayer losses, through citizen losses,” asked Hawk. “And how many dollars are staying in and being churned through the wagering system?”

“Transparency is important,” Miller said.

Thomas explained the council can receive “any data we would like to see” from operators. However, the agency chose not to continue auditing and reporting operator revenue in order “to not use our staff time on something that wasn’t required” by SB 475.

“We have the ability to audit that, and as part of our audit program, we can see what information we need, but we don’t, on a monthly basis, collect (data) the same way that we used to,” she added.

Tennessee Expecting Less Revenue This Year

With the state changing how it taxes operators, the SWC provided updated estimates on expected future collections. After generating $82.1 million in the 2022-23 fiscal year, which ended in June, the council estimates Tennessee will receive $80.2 million in the current fiscal year. That’s despite the handle expected to increase this year by 10% to $4.34 billion.

However, with officials expecting continued growth — conservatively at 5% per year — the council expects the state to receive $84.2 million in taxes for the 2024-25 fiscal year and $88.4 million in 2025-26.

By taxing handle, the state risks leaving money on the table — especially as sportsbooks are reporting higher revenues in other states due to promotions of parlay wagers, which have lower win rates for bettors. That said, the handle tax does work in Tennessee’s favor in months where sportsbooks won less. The new ESPN BET Tennessee is one of many available online betting sites in the state. There are no retail sportsbooks.

While we don’t know Tennessee sports betting operator revenues, we can surmise that bettors in the Volunteer State follow the same trends as their peers elsewhere. For example, in November, Tennessee reported a record one-month handle of $515.5 million. Indiana, a similar-sized market, also established a record with $513.6 million. Despite the record handle, Indiana operators reported just $30.7 million in revenue for the month, compared to $45.2 million in revenue in October when the handle was $429.7 million.

As a result, Indiana’s 9.5% revenue tax generated just $2.9 million in November after raising $4.3 million the month prior.

The $9.5 million in tax generated in November marked a record for Tennessee. To have received that from the 20% revenue tax, Tennessee operators would have needed to report winning more than $47.5 million in November.

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Steve is an accomplished, award-winning reporter with more than 20 years of experience covering gaming, sports, politics and business. He has written for the Associated Press, Reuters, The Louisville Courier Journal, The Center Square and numerous other publications. Based in Louisville, Ky., Steve has covered the expansion of sports betting in the U.S. and other gaming matters.