Tennessee sports betting is likely gearing up for a massive shakeup, as the House of Representatives approved a bill to tax sports betting operators on total handle instead of adjusted gross revenues.

If signed into law by Governor Bill Lee (R), Tennessee would become the first state in the country with legalized sports betting to tax its sports betting operators on total handle instead of revenue.

The House of Representatives this morning approved HB 1362 by a 75-7 vote, effectively changing the Tennessee sports betting tax rate from 20% of adjusted gross revenue to 1.85% of the total handle for operators. The House amended the Senate-approved version of the bill, SB 0475, which originally included a 2% tax rate for total handle.

The bill will have to head back to the Tennessee Senate for concurrence, as the tax rate was amended by the House, before being signed by the governor.

Hold rate mandate no more

While the new tax rate system will see an increase in taxes for most Tennessee sports betting operators, it also repeals a controversial hold rate element. The bill strikes a requirement for operators to maintain a 10% hold each month or face a $25,000 fine. According to bill’s fiscal impact summary, 9 of the state’s eleven licensed sports betting operators did not maintain the necessary 10% hold.

Most industry experts consider a 10% hold to be a fairly strong hold for operators and difficult to maintain on a monthly basis due to the fluid landscape of sports betting markets.

According to the latest fiscal impact summary for the bill, the 1.85% tax rate on total handle will increase sports betting tax revenue by more than $1.71 million for the state in FY 23-24.

In 2022, the state reported $3.77 billion in total wagers and total payouts of $3.44 billion, leading to adjusted gross revenues for the year at $338.7 million. The operators paid a total of $68.02 million in taxes based off the 20% tax rate on adjusted gross revenues.

Under the terms of the newly approved law, operators would have been required to pay nearly $69.73 million million in taxes for the year.

Finally, the bill would also extend license registration to three years instead of annually.

Who benefits from the increased taxes?

As it stands, Tennessee sports betting tax revenue is split between three parties. The current bill distributes sports betting taxes as follow:

  • 80% to the Lottery for Education Account
  • 15% to the local government
  • 5% to the Department of Mental Health and Substance Abuse Services

If the proposed bill is approved, the following increases in revenue will be realized in FY 23-24:

  • Increase of $1.36 million to the Lottery for Education Account
  • Increase of $255,876 million to the local government
  • Increase of $85,292 to the Department of Mental Health and Substance Abuse Services