Michigan Passes Lawful Internet Gaming Act: Poker + Casino Legalized!

After a flurry of last-minute legislative activity, Michigan became the fifth state to legalize online poker during a marathon day for lawmakers that began Thurs., Dec. 20 and only concluded in the wee hours of the morning on Fri., Dec. 21. Following successful votes in the state's House and Senate, the Wolverine State now joins New Jersey, Delaware, Nevada, and Pennsylvania in having passed internet gambling regulatory laws. The Lawful Internet Gaming Act now proceeds to the desk of Governor Rick Snyder (R) for his signature.

Governor Rick Snyder Must Sign the Lawful Internet Gaming Act Before His Term Ends on Jan. 1, 2019 for It to Become Law

About the Lawful Internet Gaming Act

The Lawful Internet Gaming Act, given the designation HB4926, establishes a new Internet Gaming Division within the Michigan Gaming Control Board to oversee the regulated online gaming industry. The final list of games to be offered is somewhat up to the discretion of this Division although it “must include, but need not be limited to, poker, blackjack, cards, slots, [emphasis added] and other games typically offered at a casino.” The minimum age set for allowed players is 21.

The Michigan Gaming Control Board Oversees Gambling Activities in Michigan

Only brick-and-mortar casino license holders will be eligible to obtain internet gambling licenses in the state. However, Indian tribes that maintain gambling facilities in accordance with the law will be treated as legitimate casino owners for the purposes of this legislation, and they will not have to renegotiate their compacts first in order to participate. There are approximately two dozen tribal casinos in Michigan along with three commercial casinos located in Detroit.

The MGM Grand Detroit, One of Three Commercial Casinos in the City

Licenses and Fees

In order to apply for a five-year license with the Internet Gaming Division, an entity must pay a $100,000 application fee though the Division may allow the entirety or a portion of this fee to be refunded according to yet-to-be-determined criteria. Once a license is issued, the recipient must pay $200,000 during the first year of licensure, and a further $100,000 must be paid each year thereafter.

Five-year internet gaming vendor licenses are also available, and they authorize the licensee to “provide goods, software, or services to internet gaming operators.” They have to pay an application fee of up to $5,000 followed by $5,000 upon the issuance of the license and $2,500 per year subsequently. However, if one single vendor is responsible for “all or substantially all of an internet gaming platform,” then that entity must pay $100,000 when they are granted the license and $50,000 annually in the following years.

Taxes

Internet gaming will be taxed at the low rate of 8% of gross gaming revenue, which is less than the 19% that the state levies on terrestrial casino gambling. The three casinos located in Detroit, should they pursue online licensure, would have to hand over an additional 1.25% to the city.

The income collected by the state will be divided up as follows:

• 55% to the state
• 30% to the city where the casino obtaining the license is located
• 5% to the state's school aid fund
• 5% to the Michigan Transportation Fund
• 5% to the horse racing industry

Timeline

Assuming the governor signs the Lawful Internet Gaming Act, it will come into force 90 days later. Then over the next 12 months, the Division of Internet Gaming will promulgate the rules related to the nascent online poker and casino market, and it will also review applications and issue licenses during this time. Only after the expiration of this 15-month period will the first online casinos and poker rooms be allowed to open in Michigan.

Legislative Maneuvering

The Lawful Internet Gaming Act was sponsored by State Senator Mike Kowall (R), who introduced it way back in March 2017, and State Representative Brandt Iden (R) who introduced the House's version of the bill in September 2017. Kowall commented on his reasons for wanting online gaming in Michigan:

“The potential for jobs and economic development right here in Michigan is being lost. This legislation gives Michigan an opportunity...to generate new revenue that could help fund infrastructure improvements, health care, education, public safety and other worthwhile programs.”

State Senator Mike Kowall (left) and State Representative Brandt Iden (right)
They Were Instrumental in Getting the Lawful Internet Gaming Act Passed

Neither of these legislators' bills came up for a vote in 2017, but in June 2018, Iden's bill make a lot of rapid progress and was passed 68-40 on June 12. There were concerns that this version of the bill would be unpalatable in the Senate because of opposition from the state's tribes, the City of Detroit, and other stakeholders.

It appeared that these issues would prevent the bill from succeeding in a Senate floor vote, but lengthy negotiations resulted in several changes to appease its opponents. The new text was approved by the Senate on Dec. 20 by a 33-5 margin, and this final version of the legislation was passed on to the house, which voted on it the morning of Dec. 20 and passed it 71-35.

Political Compromises

As mentioned above, several of the provisions of the Lawful Internet Gaming Act were inserted to placate groups that would otherwise have attempted to thwart it.

The tribes were granted the ability to offer online wagering services without having to go to the negotiating table with the state to amend their compacts. This ensures that they won't be unnecessarily delayed in being able to jump into the market at the same time as their commercial rivals. The 15-month waiting period before i-gaming goes live in the state is also intended to put everyone on an even footing by not granting any first-mover advantages to those firms that already have their online platforms created and ready to go.

The racing industry in Michigan is also catered to in the bill with 5% of the tax proceeds earmarked for it. The state currently has one horse racing track, Northville Downs, but it's scheduled to close after 2020. Meanwhile, an attempt to bring racing back to Sports Creek Raceway has encountered difficulties and may not come to pass. Perhaps the added infusion of cash from internet gaming will suffice to stabilize these faltering endeavors.

Harness Race at Northville Downs

The City of Detroit also had its issues with the legislation. However, the additional 1.5% of revenue that is will collect along with its 30% share of the 8% statewide tax rate was enough to quiet any criticisms from this quarter.

Constitutional Challenge Impending?

The Michigan constitution contains provisions limiting the expansion of gambling, which some observers feel could lead to the Lawful Internet Gaming Act being challenged in court, perhaps by Sheldon Adelson's Coalition to Stop Internet Gambling, and possibly be declared unconstitutional.

Sheldon Adelson, Billionaire Casino Mogul and Fervent Foe of Online Gambling

Article IV § 41 of the Michigan Constitution, as amended by initiative in 2004, reads:

The legislature may authorize lotteries and permit the sale of lottery tickets in the manner provided by law. No law enacted after January 1, 2004, that authorizes any form of gambling shall be effective, nor after January 1, 2004, shall any new state lottery games utilizing table games or player operated mechanical or electronic devices be established, without the approval of a majority of electors voting in a statewide general election and a majority of electors voting in the township or city where gambling will take place. This section shall not apply to gambling in up to three casinos in the City of Detroit or to Indian tribal gaming.

In order to make the recently passed law permissible, given this prohibition, lawmakers included the following clause in Section 4:

(2) An internet wager received by an internet gaming operator is considered to be gambling or gaming that is conducted in the internet gaming operator's casino located in this state, regardless of the authorized participant's location at the time the participant initiates or otherwise places the internet wager.

The language of the Michigan Constitution makes it clear that the section preventing new forms of gambling from appearing in the state doesn't apply to the three Detroit casinos or tribal casinos. Therefore, by declaring that an internet wager is treated as occurring at the location of the licensee's casino, legislators have effectively exempted it from this constitutional barrier.

Whether or not this rather creative workaround will hold up under court is an unresolved question. However, Senator Kowall has stated that numerous legal experts have looked at the bill and decided that it didn't violate any provisions of the state's constitution.

Poker Liquidity Sharing in the Cards?

The Lawful Internet Gaming Act contains the following paragraph:

The division may enter into agreements with other jurisdictions, including Indian tribes, to facilitate, administer, and regulate multijurisdictional internet gaming by internet gaming operators to the extent that entering into the agreement is consistent with state and federal laws and if the gaming under the agreement is conducted only in the United States.

The opens the door to Michigan possibly joining with New Jersey, Nevada, and Delaware in their poker traffic sharing compact. Because Michigan has a larger population than any of these three states, its entry into the agreement would significantly boost overall player numbers and lead to bigger tournament guarantees and higher-stakes cash tables.

We foresee that any entry into this agreement would only come about after MI online gaming launches and regulators get a chance to iron out any local issues first. This means at least a 15-month wait although the process could take much longer. We're still anticipating Pennsylvania joining the compact, which will probably happen before Michigan does. Pennsylvania legalized online poker in October 2017, but PA internet poker sites have yet to appear.

Door Open for Sports Betting

The framers of the Lawful Internet Gaming Act acted with a full cognizance of the possibilities inherent in the May Supreme Court Murphy decision, which ended the federal-level ban on sports betting.

Supreme Court Justices Who Declared Anti-Sports Betting PASPA Legislation Unconstitutional

To maintain the possibility of expanding online gaming to include wagering on sports, the drafters of the Act made sure to put the following language within it:

The division may permit internet gaming operators licensed by the division to accept internet wagers under this act on any amateur or professional sporting event or contest.

It's not a certainty that the Michigan online betting environment will definitely contain sportsbooks, but we'd say this scenario is a heavy favorite over sports betting not appearing within the state. Of course, if the Internet Gaming Division does begin licensing online betting on sports, it's a fair assumption to suppose that brick-and-mortar bookmakers will be allowed to set up shop as well.

Create Your Offshore Accounts Now

There are several offshore poker sites that continue to serve the United States, but we've detected a pattern among some of them of ceasing to accept new players from a state after online gaming licensing laws are passed in that state. At least, this is what happened in the three example cases that we have: New Jersey, Delaware, and Nevada. However, in almost all cases, they continue to allow existing users to play while closing the doors to new signups. Thus, if you live in Michigan, now's the perfect time to get your unregulated poker accounts in order before you're prevented from creating them.

For a rundown of the most reputable online poker rooms available to Michiganders, browse over to our page about internet poker in Michigan. For broader information pertaining to the United States as a whole, check out our USA online poker guide.