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Online Gambling and DFS Bill Passed by Illinois Senate

IllinoisThe bill to regulate online gambling and Daily Fantasy Sports betting still has to navigate through the tricky waters of the House before it becomes law.

It has not been a great year (or three) for proponents of regulated online gambling in the US. Proposals to regulate online gambling in California, Pennsylvania, Michigan and New York all seem to be floundering for one reason or another, so it must have seemed like Christmas yesterday when Illinois´ Senate passed a bill to regulate online gambling and DFS by a majority of 42-10.

Although the speed at which the bill flew through the legislative process was a surprise to many, the proposals to regulate DFS were already in place and generally agreed upon. The inclusion of regulated online gambling in the existing DFS bill was to appease tax paying brick-and-mortar casinos – who had used the old chestnut of cannibalization to oppose the regulation of DFS.

Reasonable License Fees and Viable Tax Rate

The portion of the bill relating to online gambling is the Internet Gaming Act. Under the Act, a new Division of Internet Gaming will be created and administered by the Illinois Gaming Board. The Division will be responsible for vetting and approving potential licensees, who – if accepted – will have to pay an upfront license fee of $10 million. The cost of the fee will be written off against future tax liabilities.

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Taxes on Gross Gaming Revenues are low compared to those already in operation or being proposed in other states. The proceeds from online casino games will be taxed at 10%, while revenues from online poker will be taxed at 15%. Although the tax rates are subject to amendment, industry observers estimate they could generate more than $25 million per year for the state.

Bad Actor Clause Causes Confusion

Previous attempts to pass online gambling legislation have been clear about what constitutes a bad actor. Proposals introduced in 2013 prohibited any operator who has accepted wagers via the Internet in contravention of this Section or United States law in the 10 years preceding the application date. This is pretty much interpreted to exclude any operator who continued to provide a service post-UIGEA.

The current proposals state no certification shall be granted to an Internet gaming vendor who has accepted wagers via the Internet in contravention of this Act or in contravention of any law of the United States. In theory, taking into the consideration the Wire Act of 1961, the language of this clause could apply to every operator applying for a license. The bad actor issue will need to be clarified when the bill is presented to the House of Representatives.

Bill Needs Thumbs Up from House Speaker First

Strictly speaking, yesterday was the last day of legislative activity in Illinois. However, the state is still to pass a budget (for the third year running), and although the Democratic-controlled Assembly has passed a budget it considers suitable, Republican Governor Bruce Rauner refuses to sign off on its because it fails to freeze property taxes. The mess has been left to the House of Representatives to sort out.

Proponents of online gambling are hoping the House will take the revenues from online gambling into consideration when trying to resolve the budget crisis. However, House Speaker Michael Madigan controls the legislative agenda, and he is known to be vehemently opposed to online gambling. Unless Madigan gives the bill the thumbs up, it is unlikely to be discussed at all.

House due to Reconvene on June 8

So, will Madigan give online gambling a chance? Will the House of Representatives raise taxes on Gross Gaming Revenues á la Pennsylvania to give the Governor the property tax freeze he wants? Will the legislature realize the current bad actor clause could prohibit every operator from applying for a license? The House is due to reconvene on June 8. It may be a while yet until proponents of regulated online gambling are able to open their Christmas presents.

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