Outgoing Michigan Governor Rick Snyder has vetoed the recently-passed Lawful Internet Gaming Act citing concerns about cannibalization and problem gambling.
Late last year, Michigan´s House Fiscal Agency produced a legislative analysis of Brandt Iden´s proposed Lawful Internet Gaming Act. Within the analysis (PDF) a Fiscal Impact Statement raises concerns about how the state´s School Aid Fund would be negatively impacted by the introduction of online gambling.
At the time the analysis was conducted, about $80 million was contributed to the School Aid Fund by the state´s online lottery, along with 42.6% of the taxes collected from Detroit´s commercial casinos (about $50 million). The authors of the analysis felt both sources of revenues would suffer due to cannibalization of the online lottery and the redistribution of tax revenues proposed in the Act.
Isn´t Cannibalization Supposed to be a Myth?
In many cases, yes. However, Michigan´s online lottery not only sells lottery tickets. The site hosts dozens of scratch card games designed to look like slots games, which are massive revenue generators because of their incredibly low payouts. There is also an unwinnable Blackjack game and a Keno game that pays out a fraction of what you would expect to win on any other site.
The likely consequence of regulated online gambling would be to divert many of the state lottery´s online gamblers to the new regulated online casinos due to a wider variety of games with better payouts. Online casinos would also be able to offer welcome bonuses and loyalty clubs to make their alternative options even more attractive. The lottery would likely lose millions in revenue.
Although casino revenues would increase, the extra taxes paid to the state would not compensate for the loss of funds generated by the lottery for the School Aid Fund because, under the Lawful Internet Gaming Act, tax revenues from online gambling will be deposited into the Internet Gaming Fund – a fund created to cover the costs of regulating online gambling in Michigan.
Is there an Issue with Problem Gambling in Michigan?
Statistics relating to problem gambling should always be taken with a pinch of salt because they are typically based on small sample sizes and then inflated to represent the whole community. The most commonly quoted statistic relating to problem gambling in Michigan is that the state has 350,000 citizens either with a gambling addiction or at risk of developing one.
However, the earliest recorded reference to this statistic dates back to the early 1990s – before commercial casinos existed in Michigan and before the state lottery went online. A more recent study (PDF) suggests the actual number of lifetime problem gamblers in Michigan is less than 226,000 – which although less than previously thought, is still a major issue.
Governor Snyder did not quote any statistics related to problem gambling in his veto letter (PDF), but instead raised concerns that an increase in gambling opportunities would result in an increase in problem gambling and the social costs associated with it. He wrote “there is a reasonable chance the state could lose revenue that could be helpful in dealing with social service issues”.
Where these the Real Issues Anyway?
Inasmuch as a reduction in revenues for the School Aid Fund and an increase in problem gambling may have been genuine concerns for Governor Snyder, there may have been a more sinister reason for vetoing the bill – Sheldon Adelson. As I noted earlier this week, many of the bills passed during the lame duck session were favorable to businesses and businessmen who had supported outgoing politicians during their tenure – the obvious exception being the Lawful Internet Gaming Act.
With Adelson having supported Snyder´s gubernatorial re-election campaign in 2014, and once considered him as a potential presidential candidate, it is not beyond the realms of possibility that Snyder vetoed the bill as a parting gift to his benefactor. Unfortunately we will never know exactly what role Adelson played in getting the bill scrapped, but the good news for proponents of regulated online gambling in Michigan is that a new Democratic governor takes over from Snyder next week.
The new Democratic governor – Gretchen Whitmer – is keen to improve Michigan´s education system and provide better healthcare access. Therefore, if Brandt Iden pursues his Lawful Internet Gaming Act again in 2019 and resolves the issues responsible for the legislation being vetoed this year, there is a better chance it will obtain the new governor´s signature required for it to become law – especially as Whitmer will be grateful for the tax revenues to help her achieve her own political ambitions.