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Michigan iGaming Proposals Pass Senate Committee

Posted on by John Lathram

MichiganA hearing of Michigan´s Senate Regulatory Reform Committee yesterday passed proposals to regulate online gambling, but many issues remain unresolved.

Last week, a series of bills related to the regulation of online gambling in Michigan were introduced into the state Senate. The bills were immediately referred to the Senate Regulatory Reform Committee, who yesterday held a hearing to allow stakeholders to express their opinions on the proposals. Unfortunately most of them failed to show up.

Instead, it was left to the supporting cast to take center stage – with representatives from the Coalition to Stop Internet Gambling (CSIG) and the Poker Players Alliance (PPA) repeating their well-worn pitches, and the Innovation Group´s Paul Irvin attempting to convince committee members that regulating online gambling in Michigan could generate $32 million per year in taxes.

Where Were All the Stakeholders?

As the bills were sponsored or co-sponsored by six of the eight committee members, the outcome of the hearing was never going to be in doubt. Consequently representatives of the three brick-and-mortar commercial casinos sent notes to say they were neutral on the proposals, while four tribal gaming interests wrote in to say they were opposed to the proposals (the reasons why are provided below).

The only genuine stakeholder to attend was Amaya´s Nicholas Menas. Menas attacked most of the CSIG representative´s claims, and went on to remind committee members that unregulated gambling is alive and well in Michigan but lacks the mechanisms to protect players from fraud or theft and does nothing to generate an income for the state.

The final speaker – David Murley, the deputy director of Michigan´s Gaming Control Board – raised the issue that the Indian Gaming Regulatory Act (IGRA) prohibits the state from collecting taxes from Michigan´s twelve gaming tribes. Without significant concessions to tribal gaming interests, Murley said, projected revenues would be way off the mark.

The Tribal Gaming Issues Explained

Under IGRA, tribes are only allowed to offer casino gambling on their own lands. Any expansion into online gambling would be illegal because the tribe would be taking bets from players located outside their reservations. This interpretation of IGRA was upheld last year when a federal court prohibited the Iipay Nation of Santa Ysabel from running its “Private Table” online poker site in California.

The tribes are also concerned about proposals to revise existing compacts to enforce a 10% tax on Gross Gaming Revenues. They claim it is an illegal tax that the state has no right to impose (as was mentioned by David Murley at the hearing). However, without imposing the tax, Michigan´s brick-and-mortar casinos would oppose the bill as tribal gaming interests would have an unfair commercial advantage.

Certain tribes also have concerns about cannibalization. They claim tribal casino revenues declined when Michigan introduced its online lottery and argue that the regulation of online gambling would have a similar effect. Whereas the bill´s main sponsor Mike Kewell suggested these issues would be resolved when no action was taken on his 2016 version of the proposals, nothing appears to be resolved yet.

Other Unresolved Issues in Michigan

Two other issues carried over from last year also remain unresolved – the lack of income for the state and the fact that an expansion of gambling may need statewide approval from voters before any laws can be enacted.

The fiscal impact attached to the current “Lawful Internet Gaming Act” suggests that the $100,000 licensing fees and 10% tax on Gross Gaming Revenues (including revenues from tribal interests) may not be enough to cover the cost of regulation. The fiscal impact statement also raise fears of cannibalization from brick-and-mortar casino and the state lottery.

The issue of whether the proposals to regulate online gambling in Michigan are in breach of the state constitution were first raised by David Murley at a hearing of the Senate Regulatory Reform Committee last May. His concerns appear to have been ignored, despite an ongoing legal challenge to DFS legislation passed last year in New York on the same grounds that the expansion of gambling is unconstitutional.

What Next for Online Gambling in Michigan

Despite the 7-1 passage of the “Lawful Internet Gaming Act” through the committee stage, there are too many unresolved issues in its current form for the bill to pass full inspection by the Senate. There is no companion bill in House of Representatives and, even if passed by both chambers, the proposals could face a legal challenge from tribal interests, commercial casinos, or parties opposed to online gambling.

So, what next for online gambling in Michigan? Probably the same as happened last year – nothing.

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