Everything You Need To Know About The Michigan Online Gambling Bill

Pending a signature from Gov. Rick Snyder, Michigan will become the fifth state to legalize online gambling.

As the clock ticked down on its 2018 legislative session, the Michigan Senate passed a flurry of gambling bills. Among the bills were an amended version of H 4926, a bill passed by the House earlier this year that legalizes online poker, casino games and ostensibly sports betting. The final vote tally in the Senate was 33-5.

The amended bill returned to the House and received a final vote of concurrence in the wee hours of the morning. It passed the House by a vote of 71-35.

The amendments that made passage possible

Prior to passage, the Senate amended the bill in three substantial ways.

At least two amendments were aimed at finding a compromise between tribal and commercial casinos in the state.

Tribes go commercial

As initially written, H 4926 required tribes to amend their compacts with the state — typically a long, drawn-out process. In the new version, tribes would be licensed through the Michigan Gaming Control Board as commercial online gaming operators.

As commercial operators, there’s no longer a need to amend tribal compacts (although the language in the bill seems to allow tribes to go down that route if they want to), and the bill expressly says it has no impact on existing compacts.

This act only regulates internet gaming as provided in this act and does not extend to the division, or any other agency of this state, any jurisdiction or regulatory authority over any aspect of any gaming operations of an Indian tribe described in section 4(4)(b) beyond those rights granted to this state under the compact with the Indian tribe.

Amendment by omission

Missing from the new bill is Sec. 16, a piece of the original legislation believed to be a major sticking point for tribes.

Sec. 16 in the original version of H 4926 said that if federal law prevented the tribes from offering online gaming to people outside their reservations, the commercial casinos could continue to operate.

The timeline suggests a synchronized launch

A third amendment that set a 15-month moratorium on the launch of online gambling websites may have also been added to appease tribes.

The 15-month hold sets up a New Jersey-style synchronized launch, easing tribal concerns that commercial casinos would beat them to market.

Bringing Detroit on board

Another significant change was the addition of a 1.25 percent tax (on top of the 8 percent tax) on the three commercial casinos in the Detroit area.

“In addition to payment of the tax and other fees as provided in this act, and to any payment required pursuant to an existing development agreement described in subsection (3), if a city has imposed a municipal services fee equal to 1.25% on a casino licensee, the city shall charge a 1.25% fee on the gross gaming revenues of an internet gaming operator that holds a casino license under the Michigan gaming control and revenue act,”

Tribal casinos are not required to pay this additional 1.25 percent tax.

A look inside the Michigan online gambling bill

The bill legalizes online poker and casino games (and possibly sports betting down the road) to anyone 21 years of age or older and located within the state of Michigan.

With low licensing fees and tax rates, it’s fair to call this is an industry-friendly bill.

• Online gambling licenses are available to tribal and commercial operators in the state.
• The license cost is $200,000 for five years, with a renewal fee of $100,000.
• The tax rate is set at 8 percent of gross gaming revenue for all operators.
• The state’s three commercial casinos will also pay an additional 1.25 percent local share tax to Detroit.
• The same tax rate would apply to online sports betting.

Other tidbits include:

• The bill appears to leave the issue of skins — or different brands that can operate in the state — up to regulators.
• The bill contains language to facilitate an interstate online poker agreement with other legal jurisdictions.

Where the tax revenue will go

Detroit lawmakers were also able to deliver significant portions of the eight percent internet gaming tax to their constituents.

The tax revenue generated through online gaming will be allocated as follows:

• Fifty-five percent will go to the state.
• Thirty percent will go to the city in which the online gaming licensee’s casino is located (Detroit for the three commercial casinos).
• Five percent will go to the state school fund.
• Five percent will go to the Michigan Transportation Fund.
• Five percent, up to $3 million, will go to the Michigan agriculture equine industry development fund (horse racing).

The bill also states:

• Beginning in 2020, guarantee $179,000,000 annually will go to the City of Detroit from gaming (land-based and online) or the state will make up the difference from its cut.
• Allocates $1 million per year will go toward the compulsive gaming prevention fund.

The contingency plan

Interestingly, legal concerns appear to have caused the legislature to pass a second online gambling/sports betting bill.

The existence of this parallel legislation was first spotted by Chris Krafcik, of Eilers & Krejcik Gaming, who called it CYA bill (you can Google that acronym if you need to) in case the main bill is struck down in court.

Court challenge will be launched (presumably by CSIG) post haste once bill becomes law. https://t.co/5OUssZNzsL

— Chris Grove (@OPReport) December 21, 2018

CSIG has all but promised to challenge the legislation.

Is legal online gambling approaching a tipping point?

When Michigan launches (likely sometime in H1 of 2020) roughly ten percent of the US population will have access to legal online poker.

• Michigan: Population of 10 million
• Pennsylvania: Population of 13 million
• New Jersey: Population of 9 million
• Delaware: Population of 1 million
• Nevada: Population of 3 million

That could create multiple tipping points.

First, online gambling is now legal in five states, including three with significant populations. That will force other states (particularly bordering states) to take notice.

It will also be a boon for legal online poker in the US. Online poker is an industry that is currently struggling with liquidity issues.

If Pennsylvania and Michigan join the existing Multi-State Internet Gaming Association, the five states will create a player pool of 36 million people, nearly the size to California. The current pool of players from New Jersey, Nevada and Delaware are just 13 million.

Finally, with Michigan on board, ongoing federal efforts to prohibit online gambling will face an even tougher climb.

In addition to the 10 percent of the country that will have access to legal online gambling, 11 states offer online lottery products, and the number of online sports betting states is set to explode in 2019.

These states will not appreciate the federal government’s attempts (largely believed to be at the behest of a single person) to undermine their gaming industries and cut off much-needed revenue streams.