Tennis balls are porous, and will allow water to seep in. The water adds too much weight to the tennis ball, causing it to be too heavy to bounce, in addition to ruining the outer surface of the tennis ball.
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When a tennis ball hits the ground, it gives off some of its kinetic energy (energy when moving) in the form of sound and friction. So, each times a tennis ball bounces, it loses energy. Also, air resistance slows it down when air-borne. Air resistance is the "friction" of the air and the object moving in the air. When a tennis ball gets wet our is left outside in the weather to long it becomes stiff and is not in its best condition to bounce very well.
It's filled with cotton. The cotton makes the ball heavier and helps to absorb impact, making the ball bounce less.
Some footballs will bounce mor then others as they are light, and when water or due get in the ball bounces in another way.