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.
[UPDATE: December 28]
In an unexpected move, Governor Snyder vetoed the Lawful Internet Gaming Act on Fri., Dec. 28, citing “unknown revenue implications.” More specifically, he said that it was unclear if the more highly taxed lottery and land-based casino industries would see some of their customers shift over to the new online gaming economy. This could have resulted in a net loss of revenue for the state and especially the School Aid Fund. He further elaborated that he was worried that expanding gaming to the internet would “encourage gambling by making it much easier to do.” Snyder also vetoed several other gambling-related bills that crossed his desk Friday.
Governor Snyder's term ends Jan. 1 at which time he will be replaced by Democrat Gretchen Whitmer. She has made statements in support of state-regulated sports betting, but her stance on online gaming is unknown.
State Representative Brandt Iden has renewed his commitment to getting an online poker and casino legalization bill passed in 2019. However, he faces an additional hurdle in that his fellow pro-gaming lawmaker State Senator Mike Kowall will not be returning to Lansing in the new year.
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.
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.
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.
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:
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.
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.”
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.
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.
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.
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.
Article IV § 41 of the Michigan Constitution, as amended by initiative in 2004, reads:
In order to make the recently passed law permissible, given this prohibition, lawmakers included the following clause in Section 4:
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.
The Lawful Internet Gaming Act contains the following paragraph:
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.
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.
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:
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.
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.