Online Gambling and Sports Betting Bill Approved in Michigan

Update: Sorry, folks. Christmas did not come early after all. After the Michigan legislature voted in favor of an online gambling and sports betting bill last week, outgoing Governor Rick Snyder has vetoed the package.

In a veto letter published Friday, Governor Snyder blamed “unknown budgetary” and problem gambling concerns presented by online gambling. He also expressed concerns that online gambling could direct revenue away from Michigan’s iLottery, which funds state education efforts.

The bill looked like an almost sure thing with lawmakers on both sides of the aisle, commercial casinos, and tribal casinos all in favor of the legislation. However, Snyder’s surprise decision has put a hold on intFstaternet gaming in Michigan until it can be taken up again next year.

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Merry Christmas, Michigan. Your representatives pulled a late shift last night to drag a wide-ranging online gambling package across the line.

The pair of bills were approved in the Senate on Wednesday and in the House last night. Now, the bills move to Governor Rick Snyder’s office for his signature. If the Governor signs off on the bills as expected, online gambling will be legalized in Michigan. A companion bill regulating and taxing daily fantasy sports games has also been approved.

Barring any unforeseen hiccups, Michigan is set to become the sixth state to legalize online gambling or poker. Nevada, Delaware, New Jersey, Pennsylvania, and West Virginia have also approved legislation authorizing online casino games, poker or both in recent years.

The main online gambling bill passed last night in Michigan has also opened the door to online sports betting, although some work still needs to be done on that end. Here’s what we know so far.

Looking at the Michigan Online Gambling Bill

HB 4926, also known as the Lawful Internet Gaming Act, legalizes online casino games and online poker for people 21 or older and located within Michigan state lines. Commercial and tribal casinos may both offer online gambling once licensed by the newly-created Division of Internet Gaming (DIG).

The DIG will be granted significant regulatory power “necessary to enable it to fully and effectively execute this act to administer, regulate, and enforce” the new act.

While the DIG will have authority to promulgate regulations as it sees fit, Michigan’s new online gambling bill also provides numerous details that offer a preview of what to expect. Much of what was included in the original bill introduced earlier this year remains intact.

Licensed Operators: Commercial and tribal casinos may apply for online gambling licenses. A $100,000 application fee is required, followed by a $200,000 licensing fee when approved. Licensed MI gambling sites will then pay an annual $100,000 fee thereafter.

Gaming licenses will be issued for 5-year periods and may be renewed for additional 5-year terms after that.

Age and Location Checks: All licensed MI gambling sites must have systems in place to verify customers are at least 21 years of age and are located within Michigan or within another state with which Michigan has an interstate gaming compact.

Interstate Gaming Compacts: Michigan is allowed to enter compacts with other states allowing multijurisdictional wagers. This is an especially important provision for online poker, as it will potentially allow Michigan poker sites to share tables with other states where online poker is legal.

Taxes: Online gambling operators will be taxed at a rate of 8% on gross gaming revenue. This is a competitive rate compared to other states and should be attractive to operators and foster a competitive online gaming industry in the state. In other words, any casino you can name in Michigan has a good likelihood of launching online gaming at some point.

DIG Duties: Michigan’s new online gambling bill establishes the Division of Internet Gaming and requires it to issue rules dealing with the following topics within one year of the act taking effect.

• Types of games that may be offered
• Qualifications, standards, and procedures for issuing online gambling licenses
• Responsible gambling obligations
• Technical and financial standards for licensed operators and their software/services suppliers
• Establish procedures dealing with interstate gaming compacts

Approved Casino Games: HB 4926 approves all casino games typically found at the casino, including player-vs-player poker.

The portion of the bill outlining the duties of the DIG includes text requiring the DIG to issue rules dealing with “the types of internet games to be offered, which must include, but need not be limited to, poker, blackjack, cards, slots, and other games typically offered at a casino.”

Security Requirements: Licensed gaming operators must include systems to “detect and prevent unauthorized use of internet wagering accounts and to detect and prevent fraud, money laundering, and collusion.”

One Year Waiting Period: One of the least exciting things to come from this bill is a provision stating licensed gaming sites may not begin offering online gambling until one year after the act takes effect. This bill, by the way, is written to take effect 90 days after it receives the governor’s signature. That means it will be at least another year and three months before Michiganders will be able to play online.

Self-Exclusion Requirements: Gaming sites must provide voluntary self-exclusion programs for players who need help quitting. Players who self-exclude will be added to a statewide database shared with other licensed operators in the state.

Is Michigan Sports Betting Next?

HB 4926 also opens the door for online sports betting in MI with a key piece of text found in the bill that reads:

“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.”

This does not necessarily mean sports betting will be coming to Michigan at the same time as online gambling and poker, though, because that is left in the hands of the DIG. If and when the DIG decides to authorize sports betting, it will still have to approve regulations and set up a new licensing process for interested operators.

The DIG may also need additional legislation from state lawmakers before proceeding. Even so, the inclusion of sports betting in this bill shows some level of intent. That single line may not give us much to go on right now, but it does significantly increase the likelihood of online sports betting coming to Michigan.

Daily Fantasy Sports to be Regulated as Well

A separate bill also passed last night will finally bring daily fantasy sports (DFS) contests such as those offered by FanDuel and DraftKings under the purview of the state. This bill does not portend significant change on the ground like the other bill approved last night because DFS websites have been operating in Michigan for years already.

HB 6420, also known as the Fantasy Contests Consumer Protection Act, simply gives DFS websites formal legal authorization, establishes some baseline regulations, creates a licensing process for DFS websites and sets tax rates for licensed operators.

Under HB 6420, the Michigan Gaming Control Board (MGCB) will oversee the industry and enforce regulations included in the bill. Key points found in the bill follow.

DFS Licenses: DFS operators must undergo a vetting process and receive a license before operating in Michigan. The initial license fee is set at $50,000 and comes with an annual renewal fee of $20,000.

Fantasy websites currently operating in Michigan as of 1 May 2017 have a 60-day grace period to continue operating their games after submitting a licensing application.

18 to Play: DFS sites must prohibit people under 18 years of age from participating in fantasy contests.

Scripts Prohibited: Licensed DFS sites must prohibit the use of scripts (third-party tools used to construct strategically effective lineups or to manage lineups) unless such scripts are made readily available to all players.

Highly Experienced Players Identified: Highly experienced players are defined as players who have entered more than 1,000 contests at a single DFS website or who have won more than three prizes valued at $1,000 or more at a single DFS website.

These players must be identified with a symbol attached to their usernames. Additionally, DFS sites must offer some contests that are not open to highly experienced players.

Self-Exclusion Requirements: DFS sites must provide responsible gambling resources and allow customers to voluntarily self-exclude themselves from participating in fantasy contests.

Private DFS Games Authorized: Private daily fantasy contests are also allowed and do not require a license if the person organizing those contests meets these criteria:

• None of the contests are made available to the general public
• Contests are limited to 15 or fewer players
• No more than $10,000 entry fees are collected in a single calendar year
• At least 95% of all entry fees are returned to participants in the form of prizes

MGCB Given Regulatory Power: The MGCB may issue rules and regulations “to ensure the integrity of fantasy contests” and to ensure compliance with the rules outlined in HB 6420. The MGCB is also charged with establishing penalties for violations of the act or of regulations promulgated by the MGCB.

Other Integrity Provisions: HB 6420 includes a number of other integrity provisions that resemble those established in other states. These include:

• Preventing DFS operators, owners, employees, other key personnel, and any of their immediate family who live in the same household from participating in DFS contests except contests that are limited to those specific people. This exception sounds like it may, for example, allow FanDuel to run an employees-only contest if it wants as long as the general public is not allowed to participate as well.
• Athletes and officials participating in an event are prohibited from playing in contests based on that event
• Players’ deposited funds must be kept in a segregated account separate from the site’s operational funds
• Licensed DFS sites must contract with a certified public accountant to perform an independent audit by July 1^st of each year