Michigan bill bets on legalizing internet gambling

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Michigan legislators are betting that online gambling could be a windfall for state coffers, pushing a plan that would legalize, regulate and tax internet gaming sites run by licensed casinos.

The Michigan Senate Committee on Regulatory Reform this past week advanced Internet gaming legislation in a 7-1 vote over protests from critics who say the bill poses a legal, fiscal and public safety risk for the state.

The legislation, which would make Michigan the fourth state in the nation to legalize online gambling, also faces opposition from several Native American tribes, who argue it would make it harder for them to obtain a license than Detroit casinos.

But sponsoring Sen. Mike Kowall, who told The Detroit News he intends to continue working with opposition groups to address their concerns, says the proposal would allow Michigan to generate tax dollars from gambling that is already occurring on off-shore, black-market websites.

“The potential for jobs and economic development right here in Michigan is being lost,” Kowall, R-White Lake, said in committee. “This legislation gives Michigan an opportunity to stop this illegal activity and to generate new revenue that could help fund infrastructure improvements, health care, education, public safety and other worthwhile programs.”

Amaya, which calls itself the world’s largest online gaming company, hopes to contract with Michigan casinos and is pushing the legislation here. Two company executives testified in support of the bill, along with legal counsel Mike Cox, the state’s former attorney general and a Republican.

Citing figures from New Jersey, which legalized online gaming in 2013, Amaya predicts internet gambling could be a $319.6 million market in Michigan. The legislation would tax gross gaming revenue at 10 percent, which could produce nearly $32 million a year in revenue for the state.

But those are industry projections. The revenue picture is more complicated than meets the eye, according to the non-partisan Senate Fiscal Agency.

Taxation and regulation

Internet casino games would compete with Michigan Lottery’s online offerings, for instance, jeopardizing a significant source of dedicated revenue for schools.

It also could affect Detroit’s three casinos, which have been dealing with heightened competition from a Toledo casino for more than four years. A portion of brick-and-mortar casino revenues go to Detroit, but for people who choose to gamble from their couch, the city would not see a dime.

“Some would have you believe internet gaming is a panacea for Michigan’s budget woes,” said Bill Jackson of the Coalition to Stop Internet Gambling. “Let me be clear: No state that has authorized internet gambling has experienced a windfall in tax revenue.”

Jackson also argued the legislation “cannot ensure the safety of the internet, or that our children are prevented from access to gaming sites,” an assertion supporters contest.

A casino licensed to provide internet gaming would have to employ some form of age verification technology to prohibit access by anyone under 21 or anyone identified in a statewide database of criminals or gambling law violators.

Gaming websites would have to include the number for a gambling addiction hotline and allow problem users an option to shut off their own access or establish their own wagering limits.

“The simple fact is, it’s not creating the next level of gambler or the next generation of gambler,” said Amaya executive Nick Menas. “Instead, it’s taking these folks that are gambling right now in an unsafe and unregulated market and bringing them into an umbrella of regulation and compliance.”

New Jersey, Delaware and Nevada have legalized some form of online gambling since 2011, when the U.S. Department of Justice under President Barack Obama reversed its longstanding position that such behavior was prohibited under the Wire Act of 1961. The Obama-era opinion held that the prohibition applied only to sports betting, which is legal in Nevada, Oregon and Delaware.

Separate legislation debated this past week in the state House Committee on Regulatory Reform would allow sports betting inside Michigan casinos if the federal law ever changes, which sponsoring Rep. Robert Kosowski hopes will happen under new President Donald Trump.

“President Trump owns casinos, so I think he understands it, and I think he’ll be all right with it,” Kosowski, D-Westland, said in committee. Trump Entertainment Resorts Inc. owns two casinos in Atlantic City, New Jersey.

But Attorney General Jeff Sessions told a Senate confirmation hearing in January that the Obama memorandum that opened the door to online gambling “shocked” him and he planned to review the “unusual” opinion.

Tribal concerns

The online gaming legislation would allow any Indian tribe that operates a Michigan casino to run internet gambling sites by amending their compacts with the state to provide a portion of the revenue.

But several tribes have spoken out against the legislation, saying it fails to recognize they already have the right to conduct on-reservation internet gaming and would give an advantage to Detroit casinos.

Detroit casino operators could obtain a state license for online gaming in a “relatively short amount of time,” Saginaw Chippewa Tribal Chief Frank Cloutier said in a letter to legislators, but tribes would be forced into a “much longer process” to amend their compacts.

“These fundamental flaws in the legislation along with a multitude of internal inconsistencies within its provisions threaten to erode tribal sovereignty and provide an unfair advantage to competitor licensees,” Cloutier wrote.

There’s also a risk some tribes will consider online gaming a violation of their compact agreements and decide to stop paying the state. The agreements generated about $43.9 million in fiscal year 2015 and support the Michigan Economic Development Corporation and the Jobs for Michigan Investment Fund.

“Each tribe is going to decide for itself where online gaming might violate its compact,” said Dave Murley, deputy director of the Michigan Gaming Control Board, who noted the state is not allowed to tax tribes because they are considered sovereign entities by the federal government.

There are 12 federally recognized federal tribes in Michigan. Six currently pay the state some revenue in exchange for the promise of regional gambling exclusivity, Murley said.

Cox argued the legislation “doesn’t change the math” for those tribes.

“This law won’t impact at all the contract they have with the state and, in reality, a number of them want to get into internet gaming as well,” he said, writing off some opposition as a “negotiating tactic.”

Kowall, who has been working on the legislation for two years, told The Detroit News he plans to sit down with tribal leaders to try to work through their concerns as the legislation moves to the Senate floor.

“I don’t dispute the fact that in any way they have a right to do online gaming on reservation land, but when you do online gaming, it goes out all over the place. So it’s a different animal,” he said.