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Is Either Side Right in the Michigan iGaming Debate?

Posted on by John Lathram

MichiganA dispute about whether slot games should be included in the state´s iGaming proposals has halted progress towards regulated online gambling in Michigan.

According to many industry observers, Michigan was one of the favorites to regulate online gambling in 2019 after coming so close last year. However, as the year draws on, it is appearing less likely a solution will be found to Gov. Whitmer´s concerns about regulated online gambling cannibalizing the lottery´s slots-like scratch card games and reducing the revenue allocated to the School Aid Fund.

The latest obstacle for proponents of gambling regulation to overcome is a request from the governor´s office that slot games are removed from the iGaming proposals and that a tiered tax rate is introduced so operators who make the most money from online gambling pay more in taxes. Michigan´s online gambling champion – Brandt Iden – feels this suggestion is unworkable. But who is right?

The Governor´s Argument

Gov. Whitmer´s argument is that, if slots games are included in legislation to regulate online gambling in Michigan, players will stop playing the slots-like scratch card games on the lottery´s website in favor of better-paying slots games provided by commercial operators. Consequently – she claims – there will be a significant decrease in revenues allocated to the School Aid Fund.

However, inasmuch as the governor´s concerns about cannibalization appear justifiable on the surface, they don´t hold water when you look deeper. No serious slots fan is likely to be playing the lottery´s scratch card games because of their poor return-to-player percentages. Instead, they will already be playing on online casinos that accept players from Michigan, so cannibalization is unlikely.

Brandt Iden´s Argument

Brandt Iden – the primary sponsor of the state´s online gambling legislation – has already agreed to review the proposed tax rates, but is opposed to removing slots games from the equation. He disputes the cannibalization argument, and claims the non-availability of slots games will not only result in a 50% loss in revenues but also deter gamblers moving from the unregulated market to the regulated market.

In my opinion, Iden is (and always has been) over-optimistic about the appeal of the regulated market to online gamblers. Certainly, for poker players, the rewards and opportunities in the unregulated market far outweigh those in the regulated market; and, with better rewards programs, bigger jackpots, and the option of anonymity (via Bitcoin) casino gamblers and sports bettors likely feel that way too.

So, Who is Right?

Brandt Iden is more right than Gov. Whitmer, but if he includes slots games in the legislation against the governor´s wishes, the legislation will only be vetoed – assuming it gets passed. However, as I have suggested previously, he doesn´t have to get everything done in one roll of the dice. Consent to the governor´s wishes, get the bill passed and amend the regulations when a suitable opportunity exists.

This won´t overcome the issue of regulated online gambling violating the state constitution or further developments concerning the DOJ´s reinterpretation of the Wire Act, but it will at least get legislators on the same side – albeit missing an opportunity to maximize revenue for the state and for the School Aid Fund once the tax schedule is revised.

Therefore, a compromise is the most likely outcome – one that sees the School Aid Fund protected, but also sees Michigan with a half-baked regulated environment based on misconceptions and unwarranted concerns. Then of course there will be the legal challenges to the unconstitutional expansion of gambling, but that´s another problem for another day.

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