Spanking him after he does what you want will always be counterproductive. In his mind he got spanked as a result of losing the game.
The growling bit from the post KwickLabs referenced seems worrisome. I agree you ought to seek help from a pro with a record of success with that kind of stuff. If he growls at you, he might do something far worse to someone he has less respect for. There’s currently a post in my local hunting forum about a dog that developed food guarding/aggression and attacked the poster’s wife over a summer sausage, resulting in significant injuries to her and their other dog, as well as tremendous heartbreak over having to put down an otherwise healthy and loved member of the household.
Besides getting professional help, don’t play the game. Never pull/tug back. Unless you are concerned the dog will attack you, stand firm, hold the towel, tell the dog to sit, then drop. If that doesn’t work, break the conditioned expectation; hold the towel and push until the dog lets go. Don’t punish him after he lets go, but a time-out might help him process what just happened and eventually adjust his behavior moving forward. You will not fix this in a day.