Legislative Consideration of Legalization
In June 2018, the Michigan House of Representatives took the first step towards legalized online gaming in the state, approving a bill that would allow casinos to offer gaming online. Passage of the bill, by a margin of 68-40, came after it was introduced for the first time in September 2017 and subsequently stalled. Prior to this, there had been previous iterations of a gambling legalization bill. The next step for legalized online gaming in Michigan is for the bill to go to the Senate for consideration. It is thought that the legislation has a decent outlook for passage in the Senate as the bill has the support of the Senate Majority Leader.
The Senate had considered online gambling legalization in 2017, but the bill stalled amid opposition from Native American casino operators. The current edition of the bill contains a compromise to gain elusive support from Native American tribes. However, the Native American tribes still have not indicated that they would support the bills, although support from the commercial casinos is clear. The two sides generally have competing interests and it is difficult to bring them under the same umbrella. Currently, the Detroit casinos are lobbying hard for the bill while the Indian casinos are opposed.
The Michigan gaming bill, H 4926, would legalize both online casino games and online poker. The stated purpose of the bill was to reclaim online gambling from the offshore entities and protect Michigan residents when they wager. Only current Michigan casino licensees may apply for and receive an online casino license. The application fee for a license is set at a low $100,000, and licenses are valid for five years. Licensing fees are $200,000 upfront with $100,000 payable annually thereafter. Indian tribes may offer online gambling provided that they are able to renegotiate their compacts with the state.
Importantly, H 4926 establishes the tax rate for online gaming. Operators are to be taxed at the rate of eight percent. This is one of the lowest tax rates for states that have either legalized or are considering legalization of online gaming. The bill establishes a revenue split for the taxes collected. 55 percent of the taxes are allocated to the city in which the casino is located. 35 percent is allocated to a special state internet gaming fund. The other 10 percent is allocated to schools and transportation.
Many of the specifics of internet gaming in Michigan would be left to be filled in by the Division of Internet Gaming, which is established by the bill. The Division is to establish regulations that would implement H 4926. These regulations would dictate the type of online games that are offered in the state, which at a minimum must include online poker. Online gaming would have a slow and deliberate rollout with games being delayed until one year after enactment of the final bill. For those who are expecting online gaming to begin imminently in Michigan, the timing of the rollout is sure to be a disappointment.
In addition to the Indian casinos in Michigan, there are three other land-based casinos in the state that would be allowed to offer online gaming. They are MGM Grand Detroit, Greektown Casino Hotel and MotorCity Casino Hotel. MGM and Greektown have parent companies that have sought to participate in online gaming in the states where they have a presence and it has been legalized. The casinos have expressed an interest in online gaming pending legalization. The casino industry in Detroit is already in a healthy place. In March 2018, Detroit casino took in record monthly revenue of $138.3 million and, their hope is that online gaming will further increase their revenue. There is a projection that online gaming could result in additional revenue between $45 to $60 million just for the Detroit casinos alone. Each of the three Detroit casinos can be expected to be participants as soon as online gaming begins. There is no word about any potential partnerships that casinos would enter into for online gaming because it is likely that the issue of partnerships would be addressed by the regulations.
Sportsbooks and Daily Fantasy
Sportsbook wagering in Michigan is similarly in the process of coming to fruition as it was addressed in the same bill as online gaming. What is clear is that there will not be legalized sports betting for the start of football season and possibly not for the entire football season. With regard to sports betting, HB 4967 states that the Division may permit a license holder to accept wagers on sporting events over the internet. The regulations must still be developed by the Division after passage of the legislation so there is still much to be settled. It is not clear that all casinos in the state support mobile sports wagering.
Daily fantasy sports is also covered by the online gaming legislation. DFS would be explicitly legalized by H 4926 and subject to regulation. Although the Michigan Attorney General does not believe that DFS is legal, operators have not stopped accepting entries from Michigan residents. There are roughly 37,000 DFS players in Michigan and the main operators earn just under $7 million of revenue in the state. Michigan residents have continued to play DFS in spite of any uncertainty.
Issues Moving Forward
One ultimate issue that must be resolved before final passage of the bill is whether an amendment to the state’s constitution is necessary to allow online gaming. There is currently a provision in an existing constitutional amendment that requires gaming expansions to be subject to a referendum. A majority of voters statewide is required to give approval to additional gambling. The argument for the constitutionality of this bill is that it is not an expansion of gambling in the state. Instead, it is merely moving existing gambling from the black market or offshore entities to regulated casinos. A legal challenge to the constitutionality of the bill may threaten to delay online gambling even further.