Christmas came early for poker players in Michigan with the passage Thursday night of the Lawful Internet Gaming Act. It’s the culmination of a four-year effort from state Sen. Mike Kowall to legalize and regulate online poker and casino games.
Minutes after the Senate passed the amended H 4926 by a vote of 33-5, Kowall spoke on the phone with Online Poker Report about how he gained support from the Indian tribes, horse racing industry and the City of Detroit – and how it all almost fell apart in the final days.
Back in June, Michigan Rep. Brandt Iden, author of H 4926, managed to get the bill passed in the House by a margin of 68-40 despite opposition from the state’s gaming tribes, who he promised that their concerns would continue to be addressed in the Senate.
The amended bill from the Senate fulfilled that promise, as it eliminated Sec. 16, which Iden had called the one point of contention preventing the Indian tribes from supporting the bill. This section essentially stated that if, for whatever reason, federal law changes to prohibit tribes from offering online gambling that occurs outside their Indian reservation, the commercial casinos in the state would be allowed to continue to operate their internet gaming operations.
The section was originally put in the bill at the request of the three commercial casinos located in Detroit, who didn’t want to invest money into the startup costs of offering online gaming only to be told they have to stop because of a decision that doesn’t involve them.
Sen. Kowall was able to convince the commercial casinos to allow for the removal of the section, which was considered a “poison pill” for the bill.
“It’s the first time I think in the history of Michigan that we had the tribes and commercial casinos come together and agree,” Kowall said.
The last piece of the puzzle was to permit the newly created Division of Internet Gaming to license Indian tribes as commercial casinos, which allayed tribal fears that delays from amending their compacts with the state could prevent them from starting at the same time as the commercial casinos.
“I think the tribes thought initially we were trying to bull them over, and that’s not the case at all,” Kowall said. “From the first day I wrote up this bill, we went and talked to the tribes first because we figured that would be the bigger barrier. We had numerous meetings and workshops over four and a half years to the point that people were like, ‘Oh God, not another meeting,’ but we kept after it.”
Once the tribes were on board, Kowall thought the bill had cleared its final hurdle heading into the last week of the legislative session. He got the bill on the agenda for Tuesday, which would leave plenty of time for it to go back to the House to confirm the changes.
Then Detroit Mayor Mike Duggan came calling with some demands that threatened to derail the bill. The bill was delayed until the final day of the session while Kowall worked to appease Michigan’s most populous city.
The result was the addition of a 1.25 percent fee on gross gaming revenues from internet gaming to the City of Detroit from the commercial casinos in its jurisdiction. That part of the state revenue from iGaming would go toward neighborhood development programs designed to create jobs and focus on the blighted neighborhoods in which the internet gaming licensee’s casino is located.
“The Mayor of Detroit had concerns of revenues and such coming out of the casinos because it affects their bond rating,” Kowall said. “With Detroit recently coming out of bankruptcy, the last thing we wanted to do is disrupt their funding sources.
“Detroit wanted some money to go to a variety of places, mostly to the neighborhoods. I didn’t have an issue with that, and I understand what they’re trying to do.”
Kowall said that once Detroit was satisfied, there were no pushbacks on the asks from the City.
Another important amendment to the bill made by the Senate was that five percent of the taxes collected by the state (at a rate of eight percent of gross gaming revenue), up to $3 million annually, would go to the Michigan equine industry development fund.
This was an essential addition to Kowall, who has more than 30,000 horses in his district.
“That’s going to help with purses in the horse racing industry in the state, which are pretty dismal,” Kowall said.
After the House confirmed the Senate changes to the bill with a 71-38 vote early Friday morning, the bill was sent to the desk of Gov. Rick Snyder for final approval.
A signature from the outgoing governor hasn’t been considered a given, but Kowall said he has been getting good feedback from the governor.
“I’ve spoken to him directly, I’ve spoken to his chief of staff, I’ve spoken to the person who cleans the floors in his office,” Kowall said. “Everyone has said he is probably going to sign it. I’m optimistic that he’ll sign the bill, especially with Pennsylvania having gone in that direction.”
Michigan would become the fifth state to legalize online gambling, following Pennsylvania, New Jersey, Delaware and Nevada (poker only). Kowall mentioned a desire for Michigan to join with those states for increased liquidity.
If the governor does sign the bill, that will begin a 15-month wait period before the beginning of online gambling in Michigan. The act takes effect 90 days after it is enacted into law. Then the Division of Internet Gaming will have one year to come up with rules and issue licenses.
“We did 15 months for some of the casinos and tribes because they were concerned that a few of the casinos can flip a switch and be up tomorrow,” Kowall said. “A couple casinos are not ready to go just yet either, but this was more for the tribes, though it wasn’t a big sticking point.”
Kowall stated that he’s “not at all” concerned with the constitutionality of the bill as passed, though he admitted that wouldn’t necessarily stop a legal challenge from taking place from a group wanting to stop legal and regulated online gambling. Given the 15-month moratorium, he’s hopeful that any legal challenge wouldn’t cause a delay.
“We’ve had the former attorney general look at it, the current attorney general look at it, we’ve bounced it off constitutional attorneys from one end of the state to the other, and they all said we’re good,” Kowall said. “Anything can be challenged, but I don’t think it’s going to. There’s so many sites out there, so many bad actors. This is a consumer protection piece.”
The opening of the bill mentions the 2011 opinion issued by the Department of Justice’s Office of Legal Counsel that interpreted the Wire Act as only applying to sports betting, allowing states to legalize and regulate internet gaming and capture the revenue for the benefit of state governments.
As OPR reported earlier this week the Department of Justice is preparing another opinion that could reverse the earlier one.
Kowall indicated that he doesn’t think a change in the OLC opinion could stop Michigan from moving forward with online gambling.
“After we get it done, it falls over 10th Amendment state rights, and I think they would be hard-pressed to reverse that,” Kowall said.
After serving the people of Michigan for much of the past 20 years, from 1998 to 2002 in the state’s House of Representatives and from 2011 to present in the Senate, Kowall is being termed out of office. His wife, Eileen, was in the House from 2009 to 2014, making them the first married couple to serve in the Michigan legislature at the same time in 25 years.
A Republican, Kowall was Majority Floor Leader, the second-highest position in the Senate, for his final term. He used that position to pursue causes he thought were important to the state and its people, including online gambling, and he finished his final day in session with a big win.
“I came to Lansing to do a couple of things that I got done, getting rid of the single business tax and putting an emphasis on skill trades,” Kowall said. “Then I got involved with autonomous vehicles and got that done.
“This was one more project I saw to add revenue to the state that had been going uncollected. I would have been extremely disappointed if I hadn’t gotten this done. Now I’ve really done all I set out to do in the state. I’m feeling pretty good right now about the job that I’ve done and where this state is going.”