Sports Leagues Lose Lobbying Battle Over Tennessee Official Data

April 24, 2023
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Tennessee’s General Assembly has passed legislation to refine the state’s 2019 sports wagering law, after an amendment to retain a first-of-its-kind official league data mandate was rejected.

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Tennessee’s General Assembly has passed legislation to refine the state’s 2019 sports wagering law, after an amendment to retain a first-of-its-kind official league data mandate was rejected.

The House of Representatives voted 75-7 on Friday morning (April 21) to approve an amended version of Senate Bill 475, with the Senate later consenting to the House changes to send the bill to the desk of Republican Governor Bill Lee.

Introducing the bill on the House floor, Republican state Representative Andrew Farmer said SB 475 included “a few clean-up things” related to Tennessee’s sports-betting law while also making “a couple of material changes.”

Tennessee in 2019 became the first state in the U.S. to mandate the use of official league data to settle in-play bets, establishing a policy precedent that has since been followed by Illinois, Michigan, Virginia and others.

Smaller sportsbook operators have pushed back against the mandate, however, with passage of SB 475 coming after two licensees recently petitioned the Tennessee Sports Wagering Advisory Council to waive the requirement on grounds that the cost of official NFL data could not be considered “commercially reasonable.”

Friday’s floor vote followed approval of the legislation a few days earlier by a House finance subcommittee where a proposed amendment to keep Tennessee’s official data mandate in place failed.

That amendment by Republican House Majority Whip Johnny Garrett would have changed the language of the Tennessee official data requirement to align it with those of other states, where leagues must first petition regulators to enforce the rule before it becomes effective.

Garrett said allowing unofficial league data could pose risks for Tennessee consumers in terms of “making sure the data is accurate.”

But Farmer described the proposal as an “unfriendly amendment” to his bill, and committee members rejected it by voice vote after acknowledging receiving numerous phone calls from representatives of both sports leagues and betting companies over the issue.

“I believe that the House ultimately supported the removal of the mandate so that the state of Tennessee would no longer be in the position of determining the commercial reasonableness of contractual terms between private companies that resell official league data and the sportsbooks that purchase it,” Farmer told VIXIO GamblingCompliance in an email on Friday.

Operators will still be required by state law and regulations to use “accurate, verifiable data in making and settling their bets,” Farmer said.

“However, we are aware that some sportsbooks believe that they can do this with data obtained from multiple sources which may not have been given the ‘official’ designation by a sports league. I think that the House wants to let the free market sort out the terms between private parties.”

Tax, Licensing Changes

Eliminating the official data requirement is not the only significant policy change due to be made by SB 475.

The bill, as passed by both the House and Senate, will also replace Tennessee’s 20 percent tax on gross revenue with a rate of 1.85 percent of online wagering handle.

Assuming Governor Lee signs the bill into law, Tennessee will become the first state to impose a tax based on sports-betting handle or turnover, although there is precedent for similar taxes in various European countries and through the wagering excise tax applied by the U.S. federal government at a rate of 0.25 percent.

Those federal tax payments will be deductible from taxable handle in Tennessee, according to the newly passed legislation.

Elsewhere, SB 475 will introduce a tiered license fee structure for mobile sports-betting operators to replace the current annual fee of $750,000.

Going forward, operators will only pay a $750,000 annual fee if they report more than $100m in wagering handle and pay $375,000 if receiving less than that amount.

Those defined annual fees would only apply until July 1, 2025, by which time Tennessee regulators must adopt new rules to instead “set license fees sufficient to defray the operating and administrative expenses incurred in administering and enforcing” the state’s sports-betting law.

Similarly, SB 475 is set to amend licensing requirements for sports wagering vendors by establishing a new $150,000 fee payable in $50,000 annual instalments spread across an initial three-year registration term. By July 2025, Tennessee’s sports wagering regulator will set new fees on the same basis applied to operators.

The bill provides a list of entities that will require a vendor registration, including platform suppliers, geolocation, KYC and payments providers, testing labs, odds and data-feed providers, and any marketing affiliates subject to a revenue-sharing agreement.

Other statutory reforms set to be triggered by the new legislation include expanding the range of individuals that have to be named on a license application to include certain key personnel alongside investors, directors and officers. The legislation will also no longer require operators to submit a letter of reference from regulators in other jurisdictions where they are licensed, and merely list those jurisdictions instead.

SB 475 is further set to rename the state’s regulatory authority to the Tennessee Sports Wagering Council, reflecting the fact that the nine-member commission no longer serves in an advisory capacity to the state lottery as was initially the case under the state’s 2019 law.

Friday’s passage of the sports-betting reforms by the General Assembly came a week after Governor Lee added his signature to a separate bill amending Tennessee’s legislation for fantasy sports.

Senate Bill 218, signed into law on April 18, transfers licensing and oversight authority for online fantasy sports contests from the Tennessee Secretary of State to the Sports Wagering Council.

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