MI Online Gambling Bill SB 889 Draws Criticism From Indian Law Experts

Bill To Regulate Online Gambling In Michigan Faces Complex Path To Passage

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Michigan lawmakers seeking to legalize online gambling face a legal and regulatory quandary.

The issue? Trying to craft a bill that would combine state law governing three Detroit commercial casinos with a separate federal regulatory scheme for 20 American Indian facilities.

Kowall’s bill not without its issues

In April 2016, Senate floor leader Mike Kowall introduced a draft bill that merged state gaming law with components of the Indian Gaming Regulatory Act.

The bill drew criticism from Indian law experts, who claimed the language violates IGRA tax, regulatory and jurisdictional provisions, and federal Indian policy.

“I think there are several problems with the language of the proposed legislation,” Joe Valandra, former executive director of the National Indian Gaming Commission, said of Kowall’s bill, which calls for amending tribal-state compacts that, under IGRA, allow tribes to operate casinos.

Among the concerns, he said, is a bill provision that require tribes give the state a share of revenue equal to a 10 percent internet tax on commercial casinos. This is an apparent violation of IGRA’s anti-tax provisions.

“It’s clearly a tax,” Valandra said.

The bill also flies in the face of a federal court ruling that the Unlawful Internet Gambling Enforcement Act prohibits the Iipay Nation of Santa Ysabel in California from taking off-reservation wagers. The case is expected to be appealed to the 9th Circuit Court of Appeals.

The December ruling by US District Judge Anthony Battaglia supports the contention by many that IGRA’s jurisdiction is limited to tribal lands and does not extend to online wagers.

“IGRA only governs on-reservation gaming,” said Indian law attorney Scott Crowell, who added that he didn’t agree with Battaglia’s ruling.

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Combining state and federal Indian law to prove arduous, perhaps impossible

Kowall’s bill – which will likely be heavily revised when reintroduced later this year – is an attempt to appease both commercial casino operators and tribal governments seeking tax and regulatory parity in an online gambling bill.

Kowall is also ceding to tribal demands that any Michigan online casino bill does not infringe on Indian sovereignty and self-governance.

His draft allows tribes to apply for website licenses either as a commercial venture, licensed and tax by the state, or through IGRA as an amendment to tribal-state regulatory agreements, or compacts.

“We’re working on trying to do something this year,” Dave Biswas, Kowall’s legislative director, said of ongoing meetings with commercial casinos, tribes and international online giant Amaya Inc., owner of the PokerStars website and a major proponent of the legislation.

“We’ve been able to work with the casinos, the tribes, Amaya and the different companies,” Biswas said. “Once we have everyone on the same page – and we’re pretty close to that – I’m sure the bill will make its way around again.

“At the end of the day they will all be supportive.”

Perhaps that will be the case.

But a dozen gambling industry attorneys, lawyers and regulators told Online Poker Report that attempting to combine state and federal Indian law into a single piece of Internet legislation will be a difficult, if not impossible, task.

“There are so many regulatory and jurisdictional components to this … it may never get resolved,” said a Michigan attorney who, like several others interviewed for this article, declined to be identified.

Michigan’s gambling landscape is further muddled by a debate over whether state law would require expansion of gambling to be subject to a constitutional amendment and/or two-thirds approval of the state Legislation.

The difficulties posed by IGRA

Commercial gambling stakeholders fear if legislation doesn’t include the tribes, the indigenous governments will be able to operate online gambling without being taxed, giving them a competitive advantage over the Detroit casinos.

IGRA was enacted by Congress in 1988 to help indigenous communities strengthen their governments and build economies. It gives tribes primacy in regulating government casinos and prohibits taxation of gambling revenues, which are used to provide services to tribal citizens.

IGRA requires that tribes operating Class III, casino-style gambling enter into tribal-state compacts giving state regulators limited oversight of the operations. Tribes can operate Class II, bingo machines and games, including poker, outside of state jurisdiction.

States under IGRA can only demand shares of gambling revenues in lieu of taxes if they provide the tribes with a benefit, most often guaranteed statewide exclusivity to operate casinos, something Michigan tribes do not have.

Indian law and gambling experts contend that trying to mesh the legal requirements of IGRA with state law – particularly with the legal cloud over the ability of tribes to accept off-reservation wagers – will be problematic, at best.

“I believe the right answer is it can be done, if it is done correctly,” Crowell said. “That being said, there are some disturbing decisions out there regarding how IGRA would work with gaming off Indian lands.

“I think it will be difficult. It’s probably like kissing a porcupine,” Crowell quipped.

“You’re not going to be able to impose a tax on the tribes. You’re not going to be able to impose regulatory restrictions as it relates to the on-reservation gaming. True parity may be a theoretical possibility, but practically it’s impossible.”

Commercial vs tribal

“If the tribes go into this it would have to be commercial gaming,” said a veteran gambling regulator who requested anonymity.

Pending online legislation in California require tribes and card rooms to apply for website licenses as commercial enterprises taxed and regulated by the state. Online gambling would be limited to online poker, a Class II game that would not require amending tribal-state compacts.

Part of the concern in Michigan is that bill language as it currently exists could conceivably allow tribes to operate online poker untaxed and outside state jurisdiction.

“In my brief review [of the Kowell draft], I would opine that if the bill passes, a tribe could operate Class II internet gaming without any compact requirement as long as bingo or poker are legal in Michigan,” former NIGC commissioner Norm DesRosiers said.

“If a tribe wished to offer other online Class III casino games then a compact amendment would be applicable under this bill.”

Even if Michigan tribal-state compacts were amended to meet provisions of Kowall’s legislation, the agreements may not be approved by the Department of Interior/Bureau of Indian Affairs, which under the Obama Administration has held the line on revenue sharing.

“Under this administration the amendments to the compact probably wouldn’t be approved,” Valandra said of the outgoing Obama Interior.

Enthusiasm for MI online gambling varies

It’s not clear whether there is much appetite for online wagering among the tribes or the three Detroit casinos: MGM Grand Detroit, MotorCity Casino and Greektown. The commercial casinos, which carry most of the political clout on gambling issues, have taken neutral positions on Kowall’s legislation.

Gambling attorneys are skeptical Amaya’s well-publicized regulatory difficulties would be welcomed by Michigan regulators, prompting speculation the company may seek to partner with an Indian tribe willing to license the company in a Class II operation outside of state control.

Amaya’s Michigan lobbyist Jeremiah Mankopf of MGS Consultants would not return calls. Amaya attorney Mike Cox said the company would not comment.

Tribes are not unified on legalizing online wagering in the state.

“I know some of the tribes are on board with it,” said James William Jr., chairman of the Lac Vieux Desert Band of Lake Superior Chippewa Indians on the Upper Peninsula. “From the discussions we’ve been having over the last two years, I don’t know where the other tribes stand on this issue of Internet gambling.”

Michigan was a pioneer in online lottery sales, a move that William said hurt tribal casino revenues. He fears online gambling will do the same.

“It’s definitely going to have an impact on us,” he said.

“We’ve had some discussions with the governor’s office,” William said of ongoing compact negotiations. “I’m open to it, but we haven’t really had any deep discussions,” he said of tribal leadership.

Most of the enthusiasm is with the larger tribes in the southern, more urban part of the state with the resources to pay the $5 million licensing fee.

“I’ve spoken to a number of tribes,” said consultant Jake Miklojcik. “They have not had a unified approach on this.”

Online gambling supporters cite revenue, consumer protection benefits

It also is not clear whether the House and Senate have a taste for expanded gambling, which is being promoted as both a revenue generator for the state and consumer protection for online gamblers.

“There is already online gambling in the state. My feelings are it might as well be the state getting the money and not the mafia,” said Senator Rick Jones.

“It will allow everybody to participate and the state will get tax dollars. I think it’s a win-win. I can’t see a reason for anybody to be against it. I think there’s a chance it will get passed.”

“Without reading it, I can’t be sure,” said Rep. Robert Kosowski, who failed last year in an effort to get a bill passed to legal sports betting. “But if it is as clear as it sounds, yes, I would get on board.”

“It’s a little before its time, maybe. It might take a year or two. But who knows? The state needs money.”

- Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law.
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