Tennessee Regulators’ Awkward Response To Official League Data Rule Challenge

Legal Tennessee sports betting has been unique since its inception. It was among the first online-only jurisdictions and is still the only state to require operators to hold at least 10% of the money that bettors give them. It could be the scene of the first serious challenge to an official data mandate as well.

Now, it seems the state’s regulatory body for sports betting, the Sports Wagering Advisory Council (SWAC), would rather not get involved in the matter. While there are multiple ways to read the Council’s response, the bottom line is that this is exactly why the body exists.

Tennessee sports betting dispute over official data mandate

According to Mike Mazzeo of Legal Sports Report, two of the newer apps on the scene in Tennessee have a bone to pick with the requirements in the state. Those are Betly and SuperBook, which launched in Tennessee last Jun
e.

The two licensees have invoked a clause in the regulations that allows them to challenge the status quo. Tennessee rules require sportsbooks to use official data sources with a caveat. That caveat is that the service is available on “commercially reasonable” terms.

That language is not unique to Tennessee. Many states with legal sportsbooks have similar stipulations. To understand the issue, it’s necessary to comprehend what official league data is and why the mandate exists.

Sports leagues sought a cut of sports betting revenue

A little bit of a history lesson is essential here. After the US Supreme Court struck down the federal Professional and Amateur Sports Protection Act in 2018, states began legalizing sports betting, like Tennessee.

Early on in the game, sports leagues like MLB were lobbying state legislatures for what they were calling “integrity fees.” They wanted state governments to force legal sportsbooks to pay them a share of their revenues. The argument had two main points:

• The sportsbooks would have nothing to offer if not for us, so we deserve a cut
• Sports betting represents a threat to our product and monitoring people costs money

The arguments fell flat. To date, none of the states to legalize sports betting have included such a provision. Eventually, the leagues realized they were blowing hot air and switched up their vernacular for getting some free cash from sports betting apps. Integrity fees morphed into “official league data.”

The sports league-created boogeyman

Data sources are a vital service in operating a sportsbook. Official league sources are the evolution of integrity fees with similarly flimsy “logic” behind them.

Sportsbook operators don’t dispatch an army of employees to report back on events in terms of how players are performing, scores, etc. Instead, they buy information from third-party services. The invention of “official data” allowed the leagues to get some money from certain providers of those services. In exchange for that cash, the leagues would hand over that official tag, and share in the spoils.

The sales pitch goes that without using official sources, sportsbooks and bettors couldn’t be assured of the accuracy of the data. Without requiring licensees to use official services, sportsbooks would use some unreliable services. And then bettors would get screwed over, cats sleeping with dogs, etc.

The commercially reasonable clause was an insertion that represented a compromise of sorts. If these official providers started charging too much for their service, licensees could raise the alarm and regulators would ride to their aid.

That’s what Betly and SuperBook have done in Tennessee. The response of the SWAC shows why the entirely flawed premise of official data mandates inevitably resulted in the exact response the SWAC has given.

SWAC says we’d rather not be involved

Mazzeo further reports that SWAC chairman Billy Orgel has essentially told Betly and SuperBook that the state’s other licensees are fine with the status quo, so the problem is with them, not the service or the regulation.

“So if some of the other larger [sportsbooks] have agreed to this, I guess financially it’s not as much of a burden on them, because of their handle, I guess,” Orgell stated during a February regulatory meeting. “They’re taking more bets.”

Orgell went on to say that he prefers the problem just go away. “I implore y’all, and we’re going to set the meeting date, but go back and work this out because this could drag out for a long time.”

One way to read Orgell’s comments that he’s espousing a classical laissez-faire approach to regulating commerce. He wants the market to work out this dispute instead of government forces stepping in to influence the conflict.

There’s one huge problem with that reasoning here, though. The government has already interjected itself into this situation. Betly and SuperBook can’t work this out, as Orgell suggests, because of the very regulation they are challenging.

The flaw in Orgell’s response

Because of Tennessee’s rules, licensees like Betly and SuperBook have three choices in this regard.

• Pay whatever the official sources are charging for their services
• Begin the process that could drag out for a long time by challenging the commercially reasonable quality of the service
• Not offer betting markets on the events related to the services

In this case, Betly and SuperBook allege that Genius Sports’ service for NFL data isn’t reasonable. For a sportsbook in the US, not offering wagers on the NFL makes operating completely pointless. They might as well just close up shop.

If there was no requirement, Betly and SuperBook could do as Orgell suggests and find another provider that fits their budget for the service. That would be the free market working the situation out and there would be no reason for SWAC to intervene.

When Tennessee imposed this rule, it decided that it would be the arbiter of sportsbook data services. It’s understandable why SWAC would rather not take on that role. Turning imaginary into corporeal is difficult.

Nobody knows what official data is

Tennessee and all the other jurisdictions that have instituted official data mandates have not specified parameters for any of the aspects of that situation. To start with, there’s no guidance for how leagues should distribute that label.

There are no requirements for leagues to vet the quality of the services or prove they have done so. While it’s possible the leagues could be doing that without a mandate, bettors probably hope they are, there’s nothing to stop the NFL and its counterparts from just giving out the official tag to whatever company offers them the most cash.

Essentially, the state has stepped in to impose a monopoly of sorts and then washed its hands of doing any further regulating. The regulation of commerce doesn’t work that way, however. Not well, anyway.

Imagine if the state imposed a law that said everyone had to conduct their Internet searches with just one website and then let the Internet service providers decide which website that would be.

The NFL and its counterparts have not shared their processes for applying the official tag to a data service. Thus, no one knows what makes an official service official, other than giving the league an unconfirmed amount of money. That no one includes the gaming regulators.

Furthermore, there is no proof that “official” data is in any way superior to “unofficial” data. Official services use the same technology as unofficial to collect and report data. They are using the same web infrastructure. It’s entirely possible that the official sources simply outbid the unofficial ones. No one knows for sure but the leagues themselves.

On top of that, the term commercially reasonable in this context is just as vague.

Nobody knows what commercially reasonable is, either

The Tennessee regs, just like the rules in all other jurisdictions with similar customs, have no finite parameters for what commercially reasonable is. It’s possible that as Orgell suggested, the regulators would rather not have to define that.

To put a solid number to that, regulators would need to get a sense of what it costs Genius Sports and its competitors to provide their service. Again, that’s
currently proprietary information. Whether the SWAC has the authority to compel Genius and the like to open their books is uncertain, too.

The simplest but perhaps most unlikely solution to this quandary is to follow Orgell’s line of thinking and let the market forces work this out. The boogeyman the leagues created to create a new revenue stream out of thin air will quickly recede into the fantasy world it emerged from.

If a data service is delivering inaccurate results or failing to provide information promptly, books like Betly and SuperBook will quickly abandon that service. If the SWAC repeals the official data mandate, the market will decide what is commercially reasonable and which services are worthy of their use.

It might be too late to hope for such an obvious resolution, even though it is exactly what Orgell said the SWAC wants. Betly and SuperBook could force the issue. Repealing the mandate altogether is the only way forward if SWAC wants to avoid getting into the mire of regulatory minutia.