Since its inception, legal sports betting in Tennessee has been somewhat experimental and unique. The newest wrinkle of that uniqueness took a negative turn for the state in August, showing that it’s too early to declare whether Tennessee legislators did the right thing.
While Tennessee gambled more money with the various online sports betting apps during August than they did in that month in any year prior, the results took a downturn. It puts a damper on a positive start for Tennessee’s new tax system.
Tennessee bettors post new August-high in gambling total
According to the Tennessee Sports Wagering Council, the state’s licensed sportsbooks took in over $243.4 million in bets during August. That’s the highest such total for that specific month in any year to date. Legal sports betting began in Tennessee in November 2020.
After allowing for permissible deductions, that translated into more than $4.4 million in taxes for Tennessee. On July 1, Tennessee became the first and only US state to tax the amount of money wagered instead of the amount that sportsbooks win from bettors.
That unique tax framework replaced another that Tennessee was the only state to adopt. August’s numbers show it’s too soon to say whether it was a good move.
Tennessee’s tax on sports betting assesses a 1.85% rate on the handle
Under the previous rules, Tennessee assessed a 20% rate on sportsbooks’ adjusted revenues. That tax rate was not out of step with how most other states with legal sports betting operate. A separate regulation associated with taxation was the unique part.
Tennessee used to be the only state to require sportsbook licensees to hold at least 10% of the money they took in every month. Licensees struggled to meet that requirement consistently.
In some cases, it made more sense for them to pay the $25,000 fine for non-compliance than adjust their product to get to 10% each month. That was a big part of why Tennessee eventually rescinded the hold requirement.
At the same time, it changed the tax structure to assess a 1.85% rate on the amount of money that sportsbooks handled each month instead of the 20% rate on sportsbooks’ adjusted revenues. The first month under the new system went well. The second, not so much.
Too soon to tell if the new sports betting tax structure is profitable
Tennessee sports betting numbers in July showed an increase of 7.7% in the year-over-year tax haul for the state. August’s might have represented the other end of a pendulum swing.
Compared to August 2022, sports betting tax dollars sunk by 8.5% in August 2023, even though the amount of money gambled rose by 15.4% in the same comparison. It’s difficult to substantiate whether Tennessee would have taken in more tax dollars under the old system.
That would require knowing how much of the $243.4 million sportsbooks in the state won from bettors. The Tennessee Sports Wagering Council no longer shares that information. Still, it’s possible to place some parameters on the situation.
If sportsbooks won 9.2% or less of the money gambled then Tennessee came out ahead in August. However, if the books won a higher percentage than that, Tennessee might have forfeited some tax revenue in the current system.
In August 2022, after deductions, sportsbooks won about 11.8% of the money they took in. The prior August, sportsbooks won about 7%. Thus, it seems just as likely that Tennessee missed out on some money as it is that it improved its fortunes during August 2023.
That’s based on a very small sample, which is the case here. Overall, two months of data are insufficient to make solid judgments about whether Tennessee did the right thing. So far, though, the data are inconclusive.