Michigan Inching Toward Legal Online Gambling As Key Players Negotiate

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Substantive discussions finally are underway to bridge the gap between Michigan casinos and the governor on internet gambling.

Gov. Gretchen Whitmer refused to engage with Rep. Brandt Iden all session, leaving the House sponsor to do what he could to get the industry to compromise with an absentee party.

It wasn’t enough, however. Before iGaming and sports betting bills passed in the House last week, Rep. Rebekah Warren made clear that the bills, as written, would be vetoed by the governor.

But Iden slapped hands with tag-team partner Sen. Curtis Hertel Jr., who is facilitating negotiations between the governor and gaming stakeholders. They seek ways to handle the tax rate to make the industry viable while addressing the administration’s concerns that Michigan’s online lottery revenue is protected.

Hertel asserts that Whitmer has backed down at least somewhat from her untenable demands made to the industry in June.

“She has concerns about the School Aid Fund,” Hertel said. “As legislators, we should all be worried about that. But that doesn’t stop these bills from being done. I think there’s a reasonable way to solve the bills. I’m absolutely confident we can get this done.”

Online lottery adds a wrinkle to Michigan iGaming efforts

As Iden found out last year, there are unique concerns when it comes to legalizing Michigan online gambling.

Michigan is trying to legalize sports betting with a robust iLottery system already intact. The state’s commercial and tribal casinos will also need to be considered.

The concerns aren’t new to this governor. Last year, former Gov. Rick Snyder vetoed the legislation for the same reasons; fear of iGaming cutting into iLottery revenue (25% of which goes to schools).

“I think the iLottery players are different than iGaming players, though in slots there probably is some overlap,” Hertel said. “We want to make sure we’re not losing money for schools while we create the industry. I think the concerns are reasonable. I don’t share all of them, but I think there’s a path forward with the meetings I’ve had.”

Snyder, a member of the Republican Party alongside Iden, offered no objections to the bills prior to vetoing.

Where Michigan online gambling negotiations stand

For as much flak as Whitmer received from Iden for not engaging in discussions prior to the House passing the iGaming and sports betting bills, she at least voiced concerns early in the process.

The problem is that the starting point was outrageous. Whitmer supported a tiered tax rate based on the revenue that reached 43.25% (including city tax) for the commercial casinos and 40% for the largest tribal casinos.

The governor also wanted a higher rate without slots, the biggest revenue generator in the New Jersey online gambling market. That was a non-starter for the industry.

Hertel revealed that the administration has backed off the no-slot demand in the latest negotiations.

Tax rate key to getting governor’s signature

From a starting point of 8%, or 11.25% with the city tax, Iden got stakeholders on board with the tiered tax structure the governor wanted at a rate acceptable to the industry.

Iden’s proposed compromise:

  • 4% tax on revenue less than $4 million
  • 6% tax on revenue from $4 million to less than $8 million
  • 8% tax on revenue from $8 million to less than $10 million
  • 10% tax on revenue from $10 million to less than $12 million
  • 19% tax on revenue of $12 million and up

That’s for the first three years. Rates would then increase by 2% over the next two years before settling at that permanent level. For the three commercial casinos, which pay an additional 3.25% to the city of Detroit, the effective tax rate would likely reach 26.25% at maturity.

That wasn’t enough for the governor, as Hertel says the administration is looking for a further increase to the tax rate. He adds that he knows the bottom line for both the stakeholders and the administration.

Hertel is the right man to lead iGaming discussions

Iden was smart to tab Hertel as the Senate sponsor for iGaming legislation after a Democrat was elected governor.

Hertel has a personal interest in internet gaming to go with a long-standing relationship with Whitmer.

He proudly admits to playing online poker right up until Black Friday in 2011, when the three big offshore sites were forced out of the US market. He says the interest in gambling came from his mother’s side of the family

Whitmer worked as a staffer for Hertel’s father when he was Speaker of the House for the Michigan legislature in the 1990s. She went on to serve in the Senate for eight years immediately prior to Hertel Jr. getting elected to represent the same district.

Hertel served as Whitmer’s point person in the Senate during budget discussions. He hopes these negotiations will go better, endeavoring to put legislation on the governor’s desk that she supports before Christmas.

“I hope we can get this done in a way that helps gets a bipartisan win and leads to more positive conversations on other issues as well,” Hertel said.

- Matthew began writing about legislative efforts to regulate online poker in 2007 after UIGEA interfered with his hobby of playing small-stakes online poker while working as a sportswriter at the Los Angeles Daily News. Covering the topic for Bluff Magazine, PokerNews and now Online Poker Report, he has interviewed four U.S. Congressmen and 40+ state legislators. His poker writing has been cited by The Atlantic, and Matt also has written on a variety of topics for Playboy Magazine, Men's Journal, Los Angeles magazine, LA Weekly and
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