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Michigan House Committee Approves Revised iGaming Bill

Posted on by John Lathram

MichiganMichigan´s House Regulatory Reform Committee has approved proposals to regulate online gambling but doubts remain about whether the Bill will pass next year.

Back in September, Michigan´s House Regulatory Reform Committee held a hearing to discuss the merits of HB 4926 – the “Lawful Internet Gaming Act”. The bill – introduced by Committee Chairman Brandt Iden – bore more than a passing resemblance to similar proposals introduced into the Senate by Mike Kewell in 2016 and 2017 that went no further than the committee stage.

The outcome of September´s hearing was described as “meaningful” by some observers and “unpromising” by others; but – after three months of behind-the-scenes discussions with stakeholders and significant amendments to the bill´s content – it looks as if there is once again some forward momentum for regulated online gambling in Michigan.

What´s Changed in the iGaming Proposals?

The changes to the originals proposals have been made in an attempt to address three key areas of opposition to the bill – the tax rates charged to brick-and-mortar casinos, tribal sovereignty, and the legality of passing legislation to expand gambling within the Great Lake State without a change to the constitution (which would require voter approval). Consequently:

  • The proposed tax rate on Gross Gaming Revenues for brick-and-mortar casinos has been reduced from 15% to 10%.
  • Tribal casinos will be allowed to renegotiate compacts with the state in order that they can accept wagers from beyond reservation boundaries.
  • The renegotiated contracts will also allow for the possibility of different tribal financial arrangements to circumnavigate the anti-tax provisions in IGRA.
  • Online gambling servers will have to be located inside brick-and-mortar and tribal casinos to circumnavigate the opposition to the bill on legal grounds.

The final change to the bill will no doubt cause a fair amount of legal debate. By housing the online gambling servers within a casino, legislators can claim they are not expanding gambling, but allowing casinos to expand their services. Anti-gambling bodies and civil rights movements will no doubt try to overturn this argument, as it removes voters´ rights on a constitutional issue.

Committee Passes Bill despite Financial Concerns

The reduction of the tax rate and opportunity to renegotiate tribal compacts appears to have been successful in getting many stakeholders on board with the bill. The brick-and-mortar casinos – who have previously stated their position as “neutral” and then “opposed” – are now said to be in favour of the proposals, and although there is still some opposition from tribal casinos, it is not as much as before. What may prevent the bill progressing in 2018 is the lack of revenue it will attract for the state.

According to the Fiscal Statement accompanying the bill, how much revenue the passage of iGaming legislation will generate is unclear because tribal agreements still have to be worked out. However, of whatever is generated, the full licensing fees and 45% of tax revenues will be allocated to a yet-to-be-created Division of Internet Gambling within the Michigan Gaming Control Board.

The Fiscal Statement raises concerns that revenues from Michigan´s online lottery will suffer due to casinos being able to offer better online games than the lottery, and that the State School Aid Fund – which is supported by the State Lottery – will also suffer as a result. The statement also predicts a loss of income for the City of Detroit, and possibly for the Michigan Economic Development Corporation and Strategic Fund if revenue-sharing payments are written out of tribal compacts.

What Happens Next for iGaming in Michigan?

With only one day left in the Michigan legislative calendar, nothing will happen until next year – at the earliest. Bills introduced in 2017 can be carried forward into 2018 so Brandt Iden´s bill will not have to go through the committee stage again before being consider for a full hearing in the House. Similarly, it should only be a case of amending Mike Kewell´s bill to match Iden´s before it is considered for a full hearing in the Senate.

A neutral observer would suggest there are too many doubts at present for the bill to progress in the short term – particularly as the online lottery is still in its infancy. Although the regulation of online gambling in Michigan should not make any difference to lottery revenues (as it is currently possible for residents of Michigan to gamble online at unregulated sites), the fear of cannibalization will more than likely delay the passage of legislation for a couple more years.

However, Michigan´s lawmakers have a habit of surprising us when it comes to iGaming legislation, so you never know.

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