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University economist warns "structural deficit" for scholarship funding as lottery falls and sports wagering faces new threats
Summary
Dr. Don Bruce of the University of Tennessee told the Senate Finance committee that lottery proceeds have fallen while scholarship expenditures have risen, creating a structural funding gap (cited at about $80 million); he warned that sports‑wagering revenues used to fill that gap face risks from emerging predictions markets and cross‑state competition.
The committee heard a data‑driven briefing from Dr. Don Bruce, director of the Boyd Center for Business and Economic Research at the University of Tennessee, on the fiscal outlook for the Tennessee Education Lottery and sports‑wagering revenues that currently help fund scholarships.
Dr. Bruce presented historical lottery proceeds and scholarship expenditure forecasts, noting a large year‑over‑year decline in lottery proceeds last fiscal year (nearly 18%). He said current lottery projections (net proceeds) trail forecasted scholarship expenditures and that sports wagering revenues have been filling the shortfall. Dr. Bruce cited a roughly $80 million structural deficit between projected lottery proceeds and expected scholarship outlays and called the fiscal picture "an existential threat" to scholarship funding unless revenue sources are diversified.
On sports wagering, Bruce outlined steady growth in handle and privilege tax receipts (privilege tax receipts recently around $108 million), but he warned of two main threats: in‑person cross‑border wagering and the rise of so‑called predictions markets that are often structured as financial transactions outside state betting tax regimes. These prediction markets can attract bettors who otherwise would use regulated sportsbooks and can avoid state privilege taxes, he said.
Dr. Bruce recommended a two‑track approach: consider revenue diversification measures for lottery‑funded scholarships and pursue multi‑state and federal engagement to address the regulatory and legal challenges posed by prediction markets that erode taxable sportsbook activity.
The committee scheduled a fuller hearing on lottery and sports wagering next week to follow up on the presentation and to hear the Tennessee Sports Wagering Council and other stakeholders.
