The identical bills to regulate and tax online gambling in Michigan address the issues responsible for last year´s efforts being vetoed at the eleventh hour.
Last December, Michigan´s legislature passed a Lawful Internet Gaming Act, only for it to be vetoed at the eleventh hour by outgoing governor Rick Snyder. Snyder´s alleged concerns included a potential increase in problem gambling, the possible cannibalization of Michigan´s brick-and-mortar casinos, and the financial impact cannibalization would have on the School Aid Fund.
At the time, I suggested a more viable explanation for Snyder vetoing the bill was a backhanded thank you to one of his biggest political backers – Sheldon Adelson. As subsequent events have shown, Adelson has significant influence at both state and federal level; but, with a new Democratic governor now in place, the “Adelson factor” should no longer be an obstacle to online gambling in Michigan.
New Bills Address Snyder´s Alleged Concerns
The identical bills have been introduced into Michigan´s House of Representatives by Rep. Brandt Iden (HB 4311), and into the Senate by Sen. Curtis Hertel (SB 186). Both include measures to fund support for problem gambling and to bolster the School Aid Fund. There is also a Municipal Services Fee charged on Detroit´s commercial casinos to ensure the city´s revenues do not suffer from cannibalization.
The issue that lawful Internet gambling would lead to an increase in problem gambling is probably moot. If problem gamblers want to get a bet on, there are plenty of unregulated channels for them to do so. However, the measures to bolster the School Aid Fund and support Detroit´s gaming revenues should address concerns raised in a Fiscal Impact Study (PDF) prepared by the House Fiscal Agency last year.
How the Support Measures will be Paid For
The support measures will be paid for by placing a bigger financial burden on commercial licensees and software vendors than previously. If Michigan´s brick-and-mortar casinos (the only entities eligible to apply for a license) wish to make an application for a license, they will have to pay $100,000. If their application is successful, the initial license fee is $200,000, plus $100,000 per year thereafter.
Software vendors (companies partnering up with commercial casinos to supply the gaming software) will have to pay an application fee of $5,000, an initial licensing fee of up to $100,000, and up to $50,000 per year thereafter. Different arrangements will be made for tribal gaming concerns, who will be exempt from paying the 8% tax on Gross Gaming Revenues plus a further 1.25% Municipal Service Fee.
What about Violating the State Constitution?
The State Constitution is still a major sticking point that could prevent the passage of the Lawful Internet Gaming Act – or see the Act repealed if there is a legal challenge to it. §41 of the State Constitution stipulates “No law enacted after January 1, 2004, that authorizes any form of gambling shall be effective”, although this section does not apply to gambling in commercial or tribal casinos.
Rep. Iden and Sen. Hertel have used this exclusion for commercial and tribal casinos as a way to circumnavigate the constitution. In their respective bills, they state an online bet received by a licensed operator is considered to take place in the licensed operator´s casino regardless of where the person placing the bet is located. It´s dodgy workaround, but it got last year´s bills passed.
And What about the DOJ´s Revised Wire Act Opinion?
The Department of Justice´s revised Wire Act opinion – that the Wire Act applies to all forms of gambling – could have implications for all regulated online gambling in the U.S. It is almost certainly going to put an end to interstate online poker compacts between regulated states if the opinion is enforced. Rep. Iden and Sen. Hertel have tried to address the first potential issue by stating:
“For purposes of this act, the intermediate routing of electronic data in connection with internet wagering, including routing across state lines, does not determine the location or locations in which the wager is initiated, received, or otherwise made.”
With regard to the likely end of interstate online poker compacts, a slight change to the wording of previous bills allows a yet-to-be-created Division of Internet Gaming to enter into agreements with other regulated states provided it is “consistent with state and federal laws”. As nobody yet knows if, when, and how the revised Wire Act opinion will be enforced, this section remains up in the air.
What´s the Likelihood of the Bill becoming Law?
Who knows? Last year it looked unlikely, then it happened in the final session of the year, only to be vetoed by a politically motivated individual. History would suggest that, having passed once, the bill is likely to successful once again. Whether it remains successful will depend on the actions of the Department of Justice and any legal challenges that emerge.
However, there is also a possibility that Detroit´s commercial casinos will not be as favorable to this version of the Lawful Internet Gaming Act as they were to last year´s version. With significant uncertainty about the prospects for regulated interstate gambling, the likelihood of a legal challenge if the bill passes, and the bigger financial burden, some casinos may look at the non-refundable licensing application fee and wonder if it is worth taking the risk. We shall see in time.