Michigan Online Gambling Bills Hang in the Balance

Michigan

MichiganUnresolved issues relating to tax rates, the constitution, and tribal compacts mean all three of Michigan´s online gambling bills still hang in the balance.

Online gambling in Michigan took another twist last week when – despite Governor Whitmer´s concerns over the proposed tax rates – Rep. Brandt Iden´s “Sports Betting Act” (HB 4916) passed the House Regulatory Reform Committee. The bill now moves onto the House Ways and Means Committee, where its fiscal implications will likely come under increased scrutiny.

However, even if the Ways and Means Committee forward the bill onto the House floor, it may still fail to become law by the end of the year due to Gov. Whitmer´s financial concerns, the legal argument the bill violates the state constitution, and potential complications relating to tribal compacts. A further issue is that Iden has inexplicably tied his sports betting bill to two other online gambling bills that also need to pass before his sports betting bill can be enacted.

What Game is Iden Playing?

Back in July, Iden indicated he was willing to sacrifice online poker and online casinos in his Lawful Internet Gaming Act in order to get a sports betting bill passed. This would have put Gov. Whitmer´s cannibalization fears on hold until – in Iden´s words – she had “a better education on the subject matter”. At the time, the idea seemed a good one, and hopes were high the bill would pass.

However, not only has Iden set the tax rates lower than the Governor wants (8% plus 3.5% for Detroit´s brick and mortar casinos), he has also tied the passage of the sports betting bill to the passage of what´s left of the Lawful Internet Gaming Act (HB 4311) and the passage of his Fantasy Contest Consumer Protection Bill (HB 4308). Basically, if one of these bills doesn´t pass – or any of them is vetoed by the Governor – none of the three bills can be enacted.

What Does the Governor Want?

Governor Whitmer´s key concern appears to be education. The reason she disapproved of the Lawful Internet Gaming Act was because commercial online casinos would offer better returns on their slots games than the Michigan lottery´s online slots games, and this would impact how much the Michigan lottery would be able to put into the state´s School Aid Fund.

She is currently trying to get the legislature to agree to an extra $500 million funding for Michigan´s schools by increasing the tax on gas by $0.45 per gallon. The legislature are pushing back against this proposal, and although some tax revenues from regulated sports betting would be allocated to the School Aid Fund, these are forecast to be only between $350,000 and $450,000 per year (at the 8% tax rate). Consequently Gov. Whitmer has insisted on a 15% tax rate.

The Constitutional and Tribal Issues

In addition to the “tied bills” issue and tax rate issue (which are both relatively simple to resolve), there are also issues related to the state constitution prohibiting an expansion of gambling without voter approval, and tribal compacts. The two issues are linked in the fiscal statement for HB 4916 inasmuch as, if tribal casinos deemed regulated sports betting to be an unconstitutional expansion of gambling that voids the terms of their existing compacts, they could stop making payments to the state.

Iden previously attempted to circumnavigate the need for voter approval by stating all bets placed via mobile devices were being placed where casinos´ servers were located and therefore lawful. Not everybody agrees with this workaround and the constitution could still come back to haunt him. Certainly it is likely there will be a legal challenge to any expansion of gambling by anti-gambling groups – assuming all three bills get passed and receive the blessing of Governor Whitmer.

Time Running Out for Iden

Although it is only the end of September, there are only twenty-five days remaining in Michigan´s legislative session. As we saw last year, gambling bills can be passed at the last minute. But as we also saw, they can be vetoed at the whim of the Governor. With so many issues to resolve, Iden has his work cut out over the next few months to tip the balance in favor of his gambling bills.

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