(The Center Square) – Tennessee has some of the biggest names in online sportsbooks, from FanDuel to DraftKings to ESPN BET and Caesars.
But the state’s stable of sportsbooks also includes outliers, like ZenSports, whose only license exists in Tennessee.
Billed by its promoters as a more modern alternative to the big names and a place where peer-to-peer betting can take place, ZenSports began operations in June 2023 in Tennessee. And, while the company promised investors expansion, even the potential for iGaming, and a more user-friendly interface and interactions than the other companies, it also has brought uncertainty to some users.
Tennessee’s sports gaming regulator, the Sports Wagering Council, recently gave conditional approval to renew ZenSports’ operator permit while handing the company a $60,000 fine for having inadequate funds in its reserve account to cover bets placed in December.
ZenSports Chief Commercial Officer Eddie Ponce told the council the issue was a “calculation error” and the regulator said the company has had the proper amount in reserves since the December infractions, but one large-scale bettor said there are plenty more red flags for the company.
The company’s quarterly financial filing shows the same. ZenSports declared it had nearly $1.4 million in player balance liabilities on Dec. 31 and just $245,406 in cash reserved for users and nearly $30,000 in cash on hand.
The council said it found insufficient cash reserves when it checked ZenSports’ account on Dec. 1, 11 and 29, 2023.
The conditional license approval requires a full audit, completed by Sept. 14 and submitted to the council by Nov. 14. Council Board Chairman Billy Orgel told Ponce at the board’s May meeting that the regulatory oversight was something the board hasn’t had to do with other operators.
“Usually everything is unanimous, and it wasn’t, Eddie, so you understand the consternation,” Orgel said. “We gave you a pass on this but please don’t let us down.
“But we wish you great success in Tennessee and let’s get the problems fixed and, if you have an issue and we can help, let our staff know.”
Sports bettor Felix Baum said that he was visiting Tennessee from his home state of Indiana in 2023, saw the promotions ZenSports was offering, and decided to sign up. Only Baum, an experienced bettor, said the signup process didn’t work and he was being asked for his Social Security number to verify his identity.
Two weeks later, he received a call from ZenSports and an offer he decided to take. If he wired either $20,000 or $50,000 to the company, ZenSports would start his account and comp a room for him at the Nashville Omni Hotel.
Baum, an adjunct professor in finance at the University of Indianapolis, knew that the combined 11% in incentives the company was offering him outweighed the mathematical risk of the normal 4% hold sportsbooks earn on a straight bet. For parlays, those odds become better for sportsbooks and worse for bettors.
So, Baum took the bonus and began large-scale wagering when he traveled to Tennessee. Baum said he would often bet $20,000 per wager with the company and the highest bet he ever placed was $100,000. He was making enough money that he sat on his laptop throughout the day placing bets.
“If you are expected to win 4% and you pay out 11%, you are expected to lose 7% with every bet,” Baum said. “So, if I made a $100,000 bet blindly, I am already expected to win $7,000. Then, if I can find an edge, maybe break even or make 1% or 2%, then on a $100,000 bet I’m expected to win $10,000.”
Baum said that the red flags, however, came when he attempted to withdraw his winnings. At first, the withdrawal didn’t arrive. Then, Baum said that Zen Sports’ chief operating officer called and asked him to reconsider the full withdrawal and offered more incentive to keep most of his funds in his account.
Baum said that he believed the company was artificially buying bet volume with large incentives. But then he looked into the company’s financial reports.
“The more you look at the financials, the more one should get worried,” Baum said. “When it’s too good to be true, it probably is.”
Ultimately, Baum got his funds and the company lowered his per-bet maximum to what he said an amount not worth his time, something he says BetMGM also did to his account after he consistently won.
The companies don’t ban bettors, Baum said, they just lower the maximum they can bet to between $10-$400, making it not worth the bettors’ time.
Baum warned the friends he had recommended ZenSports to that they should also withdraw their funds and Baum said he then talked with the council in January or February about the issues he had with the company and what he found looking into their financial reports.
Now, Baum uses ZenSports’ 10-Q quarterly filings as an example in his class on what not to do. The company, he said, even sent his tax form for his earnings in late April instead of sending it by Jan. 31 as required by law, causing Baum to have to amend and refile his taxes.
Now, he says the company has lower per-bet caps of around $400, which is how they can keep reserves above liabilities for users.
“They went to the other extreme,” Baum said. “There’s no way they can even pay the licensing fee from the money they make.”
ZenSports’ annual licensing fee is likely $375,000 if it takes less than $100 million in bets annually.
ZenSports did not respond to a request for comment from The Center Square.
“Zen has had some turnover and some growing pains over the last year,” Executive Director Mary Beth Thomas told the council in May about the company’s regulation issues.
ZenSports also needs to get its multi-factor authentication working properly based upon changes in Tennessee law.
