Home » TN Sports Betting Handle Scandal? Tax Change Proposed – Legal Sports Report

TN Sports Betting Handle Scandal? Tax Change Proposed – Legal Sports Report

The TN sports betting market started off with the unique and confusing twist of requiring operators to hold 10% of revenue every month.

Proposed changes passing through the Tennessee House would change that requirement, albeit to another head-scratching model not seen in any other US state.

Currently, TN sportsbooks have adjusted gross income taxed at 20%, with the 10% hold requirement. An amendment added to HB 1362 last Wednesday, though, would tax all operators at 1.85% of their handle.

The bill passed a Senate Committee as amended and will be heard Wednesday in the Finance, Ways, and Means Subcommittee. Mary Beth Thomas, executive director of the Sports Wagering Advisory Council (SWAC), did not respond to LSR‘s request for comment.

Why change Tennessee sports betting tax model?

The impetus for the amendment is not immediately clear. That 10% hold requirement has been an issue since the SWAC first addressed taxes at the beginning of 2022.

The SWAC became the regulator of Tennessee sportsbooks in January 2022, taking over for the Tennessee Education Lottery. The team noticed something about the tax data received from the TEL and the operators: it did not match.

“We have quite a bit of work to do to make sure we have the numbers right,” Thomas said. “We want to – we’ve got to get this right as far as what is actually owed.”

Operators not taking advantage of ‘true-up’ payments

Sportsbooks including BetMGM, Caesars and DraftKings went before the SWAC in October 2021 and asked for mandatory hold to end.

The sportsbooks did not quite get their way. The SWAC amended the rules to give operators two options:

  • Pay the $25,000 fine and have a potential black mark on their record that could pop up during future licensing processes in other states.
  • Make up the difference with a “true-up” payment, with operators filling the gap between the 10% mandatory hold and what they actually held

That has not happened, though. Thomas noted at the March SWAC meeting that councilmembers are disappointed at the missing tax dollars.

Would handle tax bring in more for TN?

Napkin math shows the handle tax would generate more taxes than have been paid between launch in November 2020 through February 2023. The minimum hold, however, still would be the most lucrative:

Taxation method Total taxes
20% with operators missing minimum hold $126.4 million
1.85% handle tax $141.2 million
20%, minimum 10% hold from each operator $152.6 million

Handle tax proposed elsewhere, but failed

The only handle tax in the United States is the federal excise levy of 0.25%, which Congress could repeal this year. There have been a handful of sports betting bills with proposed taxes on handle, but those did not pass:

Other TN sports betting changes

There are a few other proposed changes in HB `1362. Outside of the change in tax structure, the biggest switch would be the end of the official league data requirement.

That change comes after Betly and SuperBook said Genius Sportsofficial league data concerning NFL betting is not available on commercially reasonable terms.

New operators will still pay the $750,000 initial license fee. The annual renewal could cost less, though, depending on handle from the prior year. Operators with less than $100 million in handle would pay $250,000, while those with under $500 million would pay $500,000.

The SWAC is also dropping Advisory from its name since it is now the regulator.