Michigan saw its 2018 online gaming and sports betting efforts fall victim to the veto pen of Gov. Rick Snyder. So, state lawmakers spent most of 2019 coming up with a gaming expansion package that is amenable to the state’s new governor, Gretchen Whitmer.

The legislature knocked its mulligan about six inches from the pin Tuesday morning.

Amended versions of the gaming expansion package were introduced and voted on in the Senate Regulatory Reform Committee on Tuesday. The new versions are believed to have the approval of all parties involved, including Gov. Whitmer.

All indications are that the matter will be wrapped before the legislature adjourns for the year on December 19, if not sooner, most likely by Wednesday.

What Is Michigan Trying to Legalize?

Michigan is proposing a comprehensive expansion of gaming that would make it one of the most progressive online gambling states in the nation.

The package authorizes:

The Great Compromise

The big change to the legislation is guarantees made to the School Aid Fund and First Responder Presumed Coverage Fund. Gov. Whitmer has voiced concerns that the new forms of gambling would cut into proceeds from the state lottery, which sends 70% of its profit to the School Aid Fund.

“I believe we’ve made a lot of progress with stakeholders and the administration on coming to an agreement,” said Sen. Curtis Hertel Jr., who is leading the effort in the Senate, told the Chicago Tribune. “The administration had some real concerns and we took those into account. We’re going to make sure that the school aid fund is healthy going forward.”

Another significant difference compared to last year’s bills is the tax rates. The 2019 online casino bill is less-industry-friendly, but still within reason – no exorbitant Pennsylvania-like taxes on slots (54%) or sports betting (36%).

Online gaming and sports betting are subject to the same licensing fees. The licensing fees are as follows:

  • Operators – An initial application fee of $50,000 and a license fee of $100,000. The license renews annually at $50,000.
  • Suppliers – A $5,000 initial license fee that renews annually at $2,500.

Sports Betting Key Points

The legislation would impose the following tax rates on adjusted gross revenue on the sports betting and DFS industries:

  • Sports betting: 8.4% (the three commercial casinos pay an additional 1.25% to the city of Detroit)
  • Daily fantasy sports: 8.4%

Sports betting operators cannot deduct the federal excise tax from AGR, but can deduct free-play and promotions.

Another interesting tidbit is a requirement for “official league data” on in-play betting.

Online Gambling Key Points

Online casino/poker will fall under a tiered tax system:

  • revenue under $4 million = 20%
  • revenue from $4 million to $8 million = 22%
  • revenue from $8 million to $10 million = 24%
  • revenue from $10 million to $12 million = 26%
  • revenue over $12 million = 28%

The three Detroit casinos will also pay an additional municipality tax of 1.25%.

The legislation allows online gambling licensees to operate two skins, which should make Michigan a very competitive market.

Online gambling operators will not be able to fully deduct free-play and promotions from AGR. They can deduct up to 10% in Years 1-3; 6% in Year 4; 4% in Year 5; no deductions allowed thereafter.

 Hertel In a Unique Position to Broker the Deal

Up until 2019, two men, Rep. Brandt Iden and Sen. Mike Kowall, have spearheaded Michigan’s multi-year effort to legalize online gambling.

Rep. Iden is still the point man in the house of Representatives. Term limits sent Sen. Kowall into retirement at the end of 2018 — Rep. Iden will suffer the same fate next year.

Fortunately, Sen. Hertel assumed Sen. Kowall’s mantel as the online gambling-sports betting shepherd of the Senate. And Hertel brought a unique asset to the table that may have saved Michiganders from another year of close but no cigar.

The ace up Hertel’s sleeve in the negotiations is Whitmer’s longstanding relationship with the Hertels. After graduating from Michigan State, Whitmer worked for Hertel’s father, Curtis Sr., when he served as Speaker of the House. Bringing things full circle, Hertel Jr. succeeded Whitmer in the Michigan Senate in 2015.

Considering her seeming unwillingness to negotiate with the Republican-led House on the matter, the presence of Hertel cannot be understated.

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