Online Gambling Legislation on Michigan Senate Calendar

MichiganProposals to regulate online gambling in the Great Lakes State have appeared on the calendar of events for the closing session of the Michigan Senate.

Towards the end of April, Michigan Senator Mike Kowell introduced [geolink href=””]SB 889[/geolink] – the “Lawful Internet Gaming Act”. After a quick flurry of activity, the bill was passed by the Senate Regulatory Reform Committee [geolink href=””]in June[/geolink], and was expected to never be heard of again in 2016.

However, the bill has appeared of the calendar of events for the closing session of the Michigan Senate and, although occupying a lowly position among the “General Orders” to be discussed, the regulation of [geolink href=””]online gambling in Michigan[/geolink] could progress to a vote by the end of the legislative year (December 22).

A vote in favor of the bill would not ensure its enactment. The proposals would still have to be passed by the House of Representatives. Furthermore, there are significant objections to the bill and a negative Fiscal Impact statement to overcome before many Senators will get enthusiastic about the bill.

What the Lawful Internet Gaming Act Proposes

The proposals as they stand do not go into a great deal of detail. Much of the nuts and bolts of the licensing and regulating procedure will be left to a yet-to-be-created Division of Internet Gambling, who will also be responsible for introducing player protection measures (none exist at present).

What is known is that SB 889 will make the provision of online poker and certain casino games legal in the state of Michigan. Up to eight five-year licenses will be issued to Michigan-based commercial and tribal casinos, with prospective operators having to pay $100,000 when submitting their applications.

If their applications are accepted, licensed operators will have to pay a fee of $5 million that can be used as a credit towards their tax liabilities. The proposed tax rate is 10% on gross gaming revenue, which hopefully means that licensed operators will not have to charge players high levels of rake.

Where the Objections are Coming From

Ignoring the usual anti-gambling objectors, there are several significant legal and policy questions. One of the most relevant legal issues concerns whether or not the legalization and regulation of online gambling constitutes an expansion of gambling. As pointed out by David Murley – the Deputy Director of Michigan´s Gaming Control Board – [geolink href=””]at the May hearing of the Regulatory Reform Committee[/geolink]:

Under Article 4, Section 41 of the Michigan Constitution, any law enacted after January 1, 2004, that authorizes any form of gambling must be approved by a majority of voters in a statewide election and a majority of electors voting in the township or city where the gambling would take place.

Murley also raised concerns at the hearing that Indian tribes would have to waive their sovereign immunity if they wanted to apply for an online gambling license. This, according to Murley, would represent a violation of existing gambling compacts and could result in the withdrawal of payments to the state. Precedents exist for this scenario following the introduction of the state lottery.

The Fiscal Impact Statement is Not Good

A Fiscal Impact statement prepared to calculate the financial benefits to the state of regulated online gambling does not make healthy reading. The statement queries whether the tax revenue from online gambling would produce an overall increase to state revenues, or just be swallowed up in increased expenses for the Michigan Gaming Control Board and Division of Internet Gaming.

The statement compares the potential for tax revenues with New Jersey and notes that, although online gambling pulled in $44.3 million and $45.7 million in tax revenues for the state of New Jersey during its first two full years of operation, tax revenues from brick and mortar casinos fell by more than $20 million each year. A similar scenario in Michigan – with its lower proposed tax rate – would see a net decline in revenue for the state.

The statement also raises concerns about reduced payments from Indian tribes, high information technology costs to ensure compliance with the Lawful Internet Gaming Act, and the extra strain addition misdemeanor offences introduced by the bill would have on law enforcement, local court systems and jails. Effectively, the fiscal impact statement says that there may not be any increase in revenues to the state, but costs will certainly increase.

Jacqueline Packett
Jacqueline Packett