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NASHVILLE — As football fans eagerly anticipate Sunday's opening kickoff in Superbowl LIV, Tennessee gamblers are still waiting for implementation of the state's online sports-gaming law that will allow them to make legal bets on such events.

Eight months after the bill defied political odds by passing the General Assembly and becoming law, albeit without Republican Gov. Bill Lee's signature, the requirements and processes necessary for the licensing and regulation of online sports wagering in Tennessee are finally expected to come up for formal review by the Sports Wagering Advisory Board on Feb. 18.

A day later, they come before the Tennessee Education Lottery Board, which will oversee the companies allowed to operate the program for approval. The lottery board is not bound by the advisory board's recommendations.

Frustrated proponents caution that no one should bet on sports betting becoming operational in time for the NCAA Basketball Tournament in March. But there's hope it could be operational by June.

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"It's moving along slower than I'd hoped," Sen. Steve Dickerson, R-Nashville, the Senate sponsor of the sports gaming law, said in a Times Free Press interview. "And some of that is just sort of natural, administrative bureaucratic processes."

One of the concerns "that had been expressed early on was there was maybe an element of slow walking," Dickerson said. "I don't get that sense at this point — I don't get the sense that anybody is dragging their feet intentionally."

Noting "we don't have a go-live date" yet, Dickerson said, "we'd hoped obviously that it would be in place for college football last year, that's not happening."

Rep. Rick Staples, D-Knoxville, the online sports betting law's House sponsor, said he's patient.

"We got to roll out a good product that we're presenting to people. Other states are looking to model this legislation. And we don't want to come out sputtering," Staples said. "We're in a good position that — this will be up and running by June, which gives us NBA finals to work with and also gives us enough time to enter the pennant race, also obviously college football and the NFL going into the next year."

He said "hopefully we'll have all the kinks worked out and a good product out there."

 

A SLOW START

Lawmakers had tasked Tennessee Education Lottery officials with setting up the program. It will allow bettors inside the state to use their smart phones to place online bets on sporting events ranging from the NFL, NBA and Major League Baseball to college games. Sports gaming companies will pay a 20% privilege tax.

Legislative analysts last year estimated it could bring in $41 million for the state, $7.6 million for local governments, and $2.5 million for the Department of Mental Health to fund gambling-addiction programs.

Staples and Dickerson's local government provision requires 15% of the state's proceeds go to cities' and counties' roads and infrastructure projects.

While putting Tennessee Education Lottery officials in charge, lawmakers also created the Sports Wagering Advisory Council. It got off to a slow start due to delays in appointing members to have a functioning board. Lee, who could have vetoed the narrowly approved bill but didn't, was among those tardy in making appointments.

And it was six months before the advisory board held its first meeting.

When it did, advisory board members were apparently surprised as Tennessee Education Lottery President and CEO Rebecca Hargrove told them a draft of proposed rules would be sent to them later that day, The Tennessee Journal has reported.

The proposed rules set up the regulatory framework. Among other things, they set a payout cap of 85 cents on each dollar bet. That's come under question from some, including a number of advisory board members who fret it will depress competition among the online companies and disenchant bettors who might find better odds outside amid intense competition.

Tennessee Education Lottery spokesman David Smith said lottery officials have been "committed to a thorough process that establishes and fosters a responsible and competitive sports gaming market for customers in Tennessee."

He noted the lottery board's 45-day public comment period on the draft rules ended in January. The advisory council's first meeting was in November and they met again Jan. 14.

 

PAYOUT RATE DISAGREEMENT

During the advisory board's January meeting with Hargrove and lottery officials, Nashville attorney and advisory board member Tom Lee questioned the Tennessee lottery's draft rules setting the 85% limit on payouts for the online sports wagering platform licensees will operate.

Lee noted 9 other states, including Mississippi, have higher payouts, ranging from 96.1% to 86.4%. Only Indiana with its 84.2% payout rate was lower than state lottery officials' plan.

"It's difficult for us to be competitive if when you play here you win less," Lee told Hargrove, according to a recording of the meeting. "For the $10 player who wants to play the Titans in the AFC championship game, it's not a relevant matter. But for the purposes of growing revenue to the state and attracting high-quality licensees and hopefully a vigorous and sustained rollout, my bias tips to the numerator."

Lee also said having a higher payout rate should provide "a better chance of growing revenues to the state by growing the top number instead of trying to squeeze that top number a little bit to capture more down here."

Hargrove and state lottery officials say they based the payout rate on several countries' sports betting programs, including Canada and France. They looked there because states in the U.S. with online sports betting operations are almost all tied to casinos, which Tennessee doesn't have, Hargrove noted.

"I think it's important to protect the dollars that are raised," Hargrove told the advisory panel. "It's important to level the playing field for the small guys, the Tennessee companies and not just the big boys. We would hope there would be some Tennessee companies."

It also provides a "guarantee there will be some income that goes to the programs that are supposed to be funded," Hargrove added. "And it is a best practice globally, though not in the U.S. But in the U.S. the vast majority of sports wagering has come from casino operators."

Still, Hargrove suggested state lottery officials could be open to basing payout percentages on a "rolling" three-year basis.

In an interview, Lee said the lottery board is assuming "players are not price sensitive" in setting the 85% payout cap. "And I think they are, and I think that because that's how they are in every business. You want the most return for your money. And if the law puts a cap on your return, you'll take your money elsewhere."

With Tennessee surrounded by eight states, Lee noted, state bettors will have options. Arkansas already has sports betting while Virginia has casinos, he pointed out. Kentucky and Missouri are debating sports gaming legislation. Georgia has debated legislation but "seems further away from approving it than some other states," Lee said.

"So we're a state where most of our people live on or near borders. And as auto and boat dealers know, people will buy where they think they can get the best deal," he said. "If we set an artificial ceiling on what a player can make, then it's very easy to find some other place to bet. And it may well be there is a time and a place for a ceiling like that, but it seems like the start of the enterprise is neither the time or the place."

 

LICENSE FEES, "OFFICIAL LEAGUE DATA"

Earlier on in the process, Hargrove brought on board Jennifer Roberts as the director of the state's sports betting program. The associate director at the University of Nevada-Las Vegas' International Center for Gaming Regulation, she has extensive experience in sports betting and also taught and practiced gaming law for 17 years.

The lottery board's draft rules would charge Class I operators who run games to pay a $750,000 license fee. Those operators could include companies such as DraftKings and FanDuel.

Sen. Todd Gardenhire, R-Chattanooga, said in his view the "application fee is way too high. We also didn't take into account when people place their bets online with a credit card, there's a 3% to 4% charge that goes onto it." He's worried that with "all the different fees that you had to do just to get a license, it's not profitable."

Maybe a well-established company is out there that "wants to take the hit and lose money and establish themselves, so if the state ever comes down and lowers the fee, they'll be the only one left," Gardenhire said.

DraftKings and FanDuel are among companies that lobbied last year for the legislation, according to Tennessee Ethics Commission filings.

Also hiring lobbyists were the National Football League, National Basketball Association and the Nashville Predators' hockey team. Nashville is also home to the NFL's Tennessee Titans. Memphis has the NBA's Memphis Grizzlies.

While it wasn't immediately clear the three were lobbying the bill, there is a legal provision involving "official league data" that favors them and has attracted notice.

Casino.org reported that Tennessee is now one of only three states requires sportsbooks to use official league data to score live betting opportunities, joining Illinois and Michigan. That could drive costs higher, although the law provides an exception if the league cannot provide the data under "commercially reasonable terms."

Contact Andy Sher at asher@timesfreepress.com or 615-255-0550. Follow on Twitter @AndySher1.

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