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Despite passing expanded gambling legislation last year, lawmakers in Michigan seem to be further from the finish line than they were to begin the 2019 session.
A package of associated bills, including one aimed at legalized online gambling, ran into opposition during a House hearing on Thursday morning.
A total of eight bills appeared on the docket for consideration in the Ways and Means Committee chaired by Rep. Brandt Iden. The representative of Kalamazoo is a partial sponsor of the package, but he may find the sledding a bit tougher this year than last.
According to state officials who offered testimony, Gov. Gretchen Whitmer would veto his proposed legislation if it arrived on her desk in its current form.
An executive from the State Budget Office, Bethany Wicksall, indicated that Whitmer’s administration opposes this package as written.
“Our main concern, obviously, is the potential reduction in state revenue,” she began.
“As the bill is written — given the tax rate, the distribution of the additional new online gaming revenue to the state, as well as the potential impact to the state lottery — even under an optimistic scenario, Treasury estimates that there would be a potential reduction in overall state revenue.”
According to Wicksall, Michigan’s School Aid Fund (SAF) could face the most significant shortfall. The state allocates more than a quarter out of every lottery dollar spent into the fund.
Testimony from Chief Deputy Treasurer Jeff Guilfoyle helped identify the root cause of the opposition.
“It is iLottery that we think would be in most direct competition with iGaming. That substitution between iLottery and iGaming, even at a very small level, has a fairly signifiant impact on state revenue.”
The Michigan online lottery is one of six US programs that sell tickets online, a revenue stream that drove around $70 million in revenue to the state last year.
The treasury would collect less than 10% of online gambling revenue under Iden’s proposal, with just 5% of that allocated to the SAF. Officials are, therefore, worried about the potential “substitution” of lottery sales for other forms of gambling.
“Because the tax rate is so much lower,” Guilfoyle said, “the state actually comes out behind.”
The Michigan Treasury also forecasts a decrease in land-based casino gambling should online gambling become legal in the state.
According to Guilfoyle’s presentation, balancing the books would require iGaming operators to collect $174 in net revenue for every lottery dollar lost. His models forecast a negative annual impact of up to $35.5 million from iGaming.
New Jersey provides a notable counterpoint to those projections.
NJ online gambling revenue in March surged to record levels, while NJ online sports betting approached its own all-time high. Land-based NJ casino revenue, meanwhile, is mostly flat or trending slightly upward over the last five years. NJ Lottery officials have not yet published a financial report for 2018.
Officials in Michigan, however, contend that the specifics of the proposed structure — in which online gambling revenue is taxed at a lower rate than retail revenue — creates different incentives for operators in their state.
The first half of Thursday’s hearing went better than the last half for proponents of expanded gambling. Andrew Winchell, Director of Government Affairs for FanDuel, was the first witness to offer testimony.
When it comes to recorded betting activity, Winchell testified that FanDuel Sportsbook has seen “a rapid increase” in the total amount wagered in New Jersey. And for the most part, those gains are not coming from cannibalization of existing state-regulated gaming.
“[Other forms] have also remained flat or grown, depending on the product, year over year. That revenue has to be coming from somewhere. Since it’s not displacing other casino spend or other lottery spend, as far as we’ve seen, we suspect that’s captured from the illegal market.”
Chairman Iden subsequently led Winchell through a line of questions clarifying the benefits of regulated gambling — including the technology that bolsters consumer protections and restrictions. John Pappas, representing GeoComply, demonstrated one piece of that technology with a real-time map of location checks in and around New Jersey.
Representatives from the Detroit casinos also turned up in Lansing to offer testimony in support of the package.
Iden has worked to expand gambling in Michigan for several years, sponsoring the package that the legislature approved last December.
Lawmakers signed off on his MI online gambling bill on the last day of the 2018 session, but an unexpected holiday veto from Gov. Rick Snyder derailed the effort. In rejecting the proposal, Snyder cited the same concerns over cannibalization to which the new administration testified on Thursday.
Whitmer succeeded Snyder as the state’s chief executive, and some presumed the transition would ease the path to passage in 2019.
If Thursday’s testimony is any indication, though, Iden and his colleagues have more work to do. One possible change could involve allocating a larger percentage of associated revenue to the SAF — or perhaps increasing the baseline tax rate.
In addition to the online gambling and daily fantasy sports bills already filed, Iden also intends to add a standalone sports betting bill to the mix in short order. His primary online gambling bill (H 4311) contains one sentence of enabling language.