Tom Lee, a partner in the gaming industry team at Nelson Mullins, is the former vice chair of the Tennessee Sports Wagering Council and an adjunct professor of gaming law at Vanderbilt Law School. Tom counsels sports betting operators in their relationships with state regulators.

“Myths,” wrote the great mythologist Joseph Campbell, “are public dreams.” In America, a founding myth is that competition, pure and unalloyed, is not merely good, but trustworthy.

That’s what baseball’s first commissioner, Kenesaw Mountain Landis meant in 1921, when he wrote, “baseball is entirely competent to protect itself against crooks, both inside and outside the game” as he threw a couple dozen players, including the infamous Chicago Black Sox, out of baseball. Landis held baseball out as a trusted protector of competition. And by doing so, he enshrined baseball as a mythmaker unto itself.

This idea held for the better part of a century, until the sports-betting explosion of the 2020s and an otherwise forgotten shortstop for the Pirates and Padres named Tucupita Marcano wagered sums in 2022 and 2023 the Black Sox could not have imagined—including 25 games in which the Pirates played while he was on the roster.

Marcano typically bet high-risk parlays, the kind licensed gaming operators now encourage fans to make during commercial breaks in virtually each televised MLB game. He won only 4.3 percent of his bets. Say it ain’t so, Tucupita.

The sports-betting explosion that followed the U.S. Supreme Court’s 2018 decision in Murphy v. NCAA, holding unconstitutional Congress’ effort to bar states from legalizing sports betting, is well documented. Since 2018, thirty-nine states and the District of Columbia have legalized sports betting by creating or extending regulatory schemes that license sports betting operators. 

My state, Tennessee, started from scratch. One of the few states in the country with no casinos or tribal gaming, the only form of legalized betting in Tennessee prior to sports betting was the state lottery, begun in 2003. In the 2019 statute that opened the door to sports betting, Tennessee legislators originally awarded regulatory responsibility to the Tennessee Education Lottery Corporation (“TELC”), a state-created corporation that ran the lottery. 

As part of the 2019 law, Tennessee lawmakers also created an entity called the Sports Wagering Advisory Council (“SWAC”). The Speaker of the Tennessee House appointed me to serve on the SWAC. The original purpose of the SWAC, according to the statute, was to advise the TELC board of “best practices with respect to sports wagering” and “provide administrative and technical assistance.”

The TELC licensed the first group of operators in October 2020. The next year, the Legislature changed its mind. They put us in charge. No budget, no staff, no rules, no problem.

Thus began my journey as a sports betting regulator. I drafted emergency rules, we hired a terrific executive director, and we worked with lawmakers to pass a budget. Our predecessors had already issued a handful of sports betting licenses. Renewal applications were pending. We built a framework for evaluating their renewal in weeks.

This is the story of that framework, what it does and what it doesn’t do.

One of the things we realized quickly was that we were, first and foremost, building a foundation upon which the relationship between state and gambling operator would exist. In that regard, our first concern was to ensure that Tennessee’s betting operators were solid companies who could deliver on two fundamental promises to Tennessee bettors: 

1. If a bettor deposited money with the operator, the bettor could get it back when it wanted; and 
2. If a bettor made a winning wager, the bettor would get paid. 

We had other concerns, of course. We didn’t want kids gambling. We wanted to make sure the only games available in our state were licensed by our council. We weren’t especially keen on amateur sports betting. And we wanted gambling operators to offer help to problem gamblers.

These all boiled down to two things. We needed operators who could deliver on their financial assurances. And we wanted operators committed to our idea of ethical business conduct.

We found those. Gaming enterprises are among the most heavily regulated, closely scrutinized businesses on the planet. Those who choose to submit themselves to the state-based regulatory system are as transparent and financially sound as any other financial services corporation.

It was important to ensure this kind of integrity and accountability. It was all we could do. But the years since have demonstrated that the real challenges, the real risks, of a sports-betting boom extended beyond our regulatory reach.

Gambling in the early days of professional sport was illegal. It was also everywhere.

“Baseball and betting were aligned from the beginning,” Eliot Asinof wrote in “Eight Men Out,” still the most popular account of sport’s greatest gambling scandal, the alleged throwing of the 1919 World Series by the Chicago White Sox.

The story of the Black Sox, as history would dub them, is well-known. It has been told as a morality tale (“Eight Men Out”), a Greek tragedy (“say it ain’t so, Joe”), even a comeuppance for the Lords of Baseball.

It is almost never remembered for what it is—a gambling story.

Landis’ response to the scandal, the banishment of nearly the entire White Sox starting lineup for life, would try to change that. Rule 21(a) in the baseball rule book, subtly entitled “Misconduct,” framed the Black Sox problem in strictly gambling terms:

Any player or person connected with a Club who shall promise or agree to lose, or to attempt to lose, or to fail to give his best efforts towards the winning of any baseball game with which he is or may be in any way concerned, or who shall intentionally lose or attempt to lose, or intentionally fail to give his best efforts towards the winning of any such baseball game, or who shall solicit or attempt to induce any player or person connected with a Club to lose or attempt to lose, or to fail to give his best efforts towards the winning of any baseball game with which such other player or person is or may be in any way concerned, or who, being solicited by any person, shall fail to inform the Commissioner (in the case of a player or person associated with a Major League Club) or the President of the Minor League Association (in the case of a player or person associated with an independent Minor League Club) immediately of such solicitation, and of all facts and circumstances connected therewith, shall be declared permanently ineligible.

Subsection (d) extends the possibility for a lifetime ban to players and staff:

1. Any player, umpire, or Club or League official or employee, who shall bet any sum whatsoever upon any baseball game in connection with which the bettor has no duty to perform, shall be declared ineligible for one year.
2. Any player, umpire, or Club or League official or employee, who shall bet any sum whatsoever upon any baseball game in connection with which the bettor has a duty to perform, shall be declared permanently ineligible.

Baseball has taken this rule so seriously it has been posted in every team clubhouse for a century. Every time Tucupita Marcano put on his uniform, he saw it. It is the only such rule in the book.

My contracts professor taught me 35 years ago that contracts were about risk allocation. Parties who sought to do business with another attempted to allocate the risks of  their commercial activity—failure of performance, failure to pay—to the various parties and built them into an agreement that made sense to both sides. 

The reason lawsuits nevertheless occur is that this process is imperfect. Inevitably, risks unanticipated and unallocated occur. They can be spectacular in scale and impact—a foreign war, a loss of a key executive, a natural disaster. More often, though, the failure of the contract is over a basic commercial risk the parties could not, did not—or chose not to—allocate with foresight.

When we built our sports wagering regulatory platform, we were creating a contract of sorts with gaming operators: Follow our rules, pay your taxes, and we will allow gambling in our state. Viewed on its terms, that contract has worked. Tennesseans seem to like the deal, too, wagering nearly $15 billion since 2021.

These are the risks we didn’t allocate:

• The Division III coach who bet when he wasn’t supposed to;
• The NFL offensive lineman suspend for part of a season for betting at the team’s practice facility; 
• Increasing scandals in professional sports—hockey, baseball, football—and players kicked off collegiate teams.
• The college baseball coach who tipped betters off to an otherwise unknown change in starting pitchers. 

And, within the last month, the scandals that have rocked professional basketball and baseball: Players faking injuries to give bettors an edge on their individual performance. Two Cleveland Guardian pitchers indicted for tipping bettors to intentionally wild pitches.

Rule 21(a) reminds us these risks were foreseeable. 

But, they are also risks outside the regulator-operator framework that we, and others, built, state by state. In none of these scandals have operators conducted themselves in any way other than exemplary. Often, it’s the operators who are providing the key evidence to identify those who seek to take advantage of widespread availability and interest in gambling. 

And here is the dilemma: what should the state do with these unallocated risks? Are they material to the state regulatory systems? 

We should note here that gambling didn’t start in 2019. It is as ancient as the centurions casting lots at the foot of the Cross. Nor is it strictly domestic. The internet has enabled a world of shadowy, unregulated, offshore betting whose scale arguably dwarfs the legal U.S. market. 

But neither are we helpless. 

I think it starts in Legislatures. Persons who harm their teammates, universities and colleges, should be liable to them for the harm they cause. This should not be about punishing addiction. But in the same manner that states aggressively prosecute drunken driving, we need new tools to punish the very real harm that illicit match-fixing does to others. 

Among those tools is money. Local prosecutors, overworked and understaffed, lack the resources to prosecute most gambling cases. Last year, the Tennessee Sports Wagering Council referred about two dozen cases of minors betting on sports to local prosecutors. No prosecutions resulted. Regulatory boards need the power and resources to prosecute these cases. 

States should do more for problem gaming, as well. In Tennessee, five percent of tax proceeds from sports betting go to gambling addiction treatment and research. It is not enough. We should double the share of tax revenue for this vital purpose. We need more treatment resources, research, and outreach to identify and help problem gamers.

Here’s my confession: I like the occasional $5 bet. At my gaming law class at Vanderbilt Law School, I ask my students to make weekly college football bets with “points” I supply them. I then require them keep a weekly sports betting journal about their experiences. My feedback from last year’s class told me students loved the idea of intentional reflection about the way gambling made them feel and act. I like emailing with my students about their choices and the way those choices act upon their psyches, often in surprising ways.

We can do that everywhere. In fact, I think we must. We can have an honest conversation about the harm that the unallocated risks occasioned by legal sports betting even as we enjoy with the competition and contests they afford. We can celebrate the repatriation of tax dollars from offshore operators and the effort to bring gambling out from the shadows and into the light of day even as we acknowledge that widespread sports gambling is not always be the best thing for everyone in our state all the time. 

One might say, this isn’t the states’ job. And maybe not. But the states gave us this. I think it’s incumbent on the states to allocate at least some of that risk where it belongs in the public interest--on the gaming states themselves.

We already, and rightly, ask a great deal of our betting operators to make this happen. Let’s reassess and reallocate the risks of legal gaming and begin to ask more of us all.