State lawmakers take another gamble on online gaming legislation

Beth LeBlanc
The Detroit News
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Lawmakers are making another go at legalizing online gaming activities after the legislation to do so last year was vetoed by Republican former Gov. Rick Snyder.

Lansing — Lawmakers are making another go at legalizing online gaming activities after Republican former Gov. Rick Snyder last year vetoed similar legislation.

The bills proposed Tuesday in a House committee would allow and regulate online casino games and online fantasy sports contests, exempting the activities from the state’s prohibition on gambling.

The legislation, Portage Republican Rep. Brandt Iden said, allows Michigan to modernize its gaming and betting industries and regulate activity that is already happening illegally online where the state can collect no tax revenue.

“This is really about updates,” Iden told lawmakers Tuesday. “This is about the future of the industry. This is about making sure Michigan stays competitive.”

This session's version of the legislation includes a repeal of a 21-year-old provision banning casino licensees and their employees from making political contributions. 

The elimination of the ban, first reported by the Michigan Campaign Finance Network, brings Michigan law in line with federal campaign finance rules and allows casinos parity with other businesses, Iden said. 

The version sent to Snyder late last year did not change the ban on political contributions, but Snyder still vetoed the package. In his December veto letter, Snyder cited “unknown budget concerns” for his rejection of the bills, including the possibility that the online games would decrease Michigan Lottery revenue that supports K-12 schools.

The House Fiscal Agency echoed Snyder's concerns about the potential lottery diversion. The agency also said the proposed online gaming tax, which is lower than what's assessed on brick-and-mortar casinos, could result in lower tax revenue for the School Aid Fund should the online games become a substitute for gambling in casinos.

The three Detroit casinos and 23 tribal casinos would obtain licenses to offer online gaming through web portals and pay an 8 percent tax on the activity.

Iden, who spearheaded the legislation last year and this year, dismissed concerns that the online gaming opportunities would take away customers who usually played the lottery or played in a physical casino.

“It’s two different players,” Iden said. “The demographic that we’re capturing with the online gaming bill is a younger demographic.”

The bills could get another hearing by the House Regulatory Reform Committee as early as next week. Lawmakers have been in contact with Democratic Gov. Gretchen Whitmer’s office regarding the bills but have received no formal assurances of support, said Rochester Hills GOP Rep. Michael Webber, chairman for the Regulatory Reform Committee.

The Fantasy Contests Consumer Protection Act regulatory framework would fall under the Michigan Gaming Control Board and regulate companies such as FanDuel and DraftKings, requiring licensing fees of $50,000 and $20,000 for an annual renewal.

Fantasy sports contests with fewer than 15 people and less that $10,000 in total entry fees would not require a license.

The bills discussed Tuesday also would allow for advance-deposit wagering in horse racing and clarify the rules for charitable gaming in Michigan.

Online gaming at the casinos would be limited to betters within state lines and ensure such compliance through geofencing that monitors where the person is located.

The legislation also would hold the city of Detroit harmless for any business lost at its three brick-and-mortar casinos by diverting some of the tax revenue from online gaming back to the city.

MGM Detroit, MotorCity and Greektown casino officials didn’t believe the opportunity would have an adverse effect on business downtown. The technology would help the casinos to reach new gamblers and eventually draw those gamblers into the brick and mortar casinos.

“This is a tool that doesn’t impact what already exists, but enhances the opportunity for Michigan to do better,” said Marvin Beatty, vice president for Greektown Casino.

The state could realize an estimated $54.8 million based on increases New Jersey saw when it legalized online gaming, said former Attorney General Mike Cox, who spoke to legislators Tuesday on behalf of online and mobile gaming company, The Stars Group.

“This isn’t authorizing any new gaming, in the sense that its already happening, but recognizing and regulating it,” Cox said.

A recent U.S. Department of Justice opinion on the Wire Act that could potentially impact intrastate gaming would not impact Michigan’s proposed plan, citing an opinion from Justice Samuel Alito that ruled "gaming is particularly a state policy," Cox said. 

"This is one of those powers reserved to the state," Cox said. 

Attorney General Dana Nessel led a 13-state amicus filing Monday opposing the DOJ’s opinion on the issue, noting that the ruling could impact Michigan’s $900 million in annual school funding derived from the lottery.

Lifting the political giving ban

The state's 21-year-old ban on political contributions was developed when casinos were considered to be part of "criminal rings and mafia," Iden said. Twenty years later, "these businesses are viable businesses now operating in the city of Detroit," he said. 

Both Iden and Webber said the political giving ban essentially is a violation of a potential donor's First Amendment rights. 

"I would argue that they should have the same rights as anybody else,” Iden said of casinos.

The ban on political contributions was put in place because of concerns from some lawmakers who noted the numerous contributions casinos had made to lawmakers in Nevada, said Oakland County Sheriff Michael Bouchard, who wrote the original legislation while a House lawmaker in 1996. The legislation served as a framework to enable an initiative passed by voters in 1996. 

Bouchard said, at the time, he didn't think Michigan would face the same pressures as Nevada, but the language was included to gain the necessary support for passage. 

"I didn’t think it would replicate itself in this state because it wouldn’t ever be the dominant industry," Bouchard said. 

While the sheriff wasn't opposed to a repeal of the ban, he did take issue with other sections of the bill that would loosen bans on licensees with felony or misdemeanor offenses.

The bill would need a three-quarters majority to pass, Iden said. The legislation passed the House 90-17 last year, but at that time it did not contain the repeal of the political giving ban.

It is not clear what type of support the bill would have from Republicans and Democrats. While still in the House last year, GOP Rep. Gary Glenn argued that the political giving ban enforced on casinos should be extended to utilities, which are also regulated by the state.

The comment came after Glenn, who pushed "energy choice" policies, said dark money "monopoly utilities" were in part to blame for his loss in a Senate primary. 

Glenn said the retaliation occurred through three nonprofits that spent at least $263,000 in his district after the Republican took a hard line on energy rules involving Michigan utilities such as DTE Energy Co. and Consumers Energy Co.

One of the nonprofits, Citizens for Energizing Michigan's Economy, benefited from roughly $20 million in contributions from Consumers Energy "non-customer, shareholder dollars" in 2017, but the company denied being involved with the other nonprofits.

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