Bill would legalize internet gambling in Michigan, but only inside casinos

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LANSING — The push to legalize internet gambling has states betting on potential tax revenue, but a bill in Lansing would go about it in a curious way — allowing it only within casino walls. That's a quirk of Michigan's constitutional amendment that requires most gambling expansions to go before voters, and some analysts say the proposal on the table could drastically limit the potential payoff to the state and siphon tax dollars away from the city of Detroit.

Backers of a plan to allow gamblers at Detroit's three commercial casinos and casinos owned by American Indian tribes to legally play online poker and card games within casino walls say Michigan could net millions of dollars in new tax revenue. Today, companies that run gambling websites are unregulated in Michigan and pay no state or city taxes. The legislation pending in the Senate would make Michigan the fourth state to legalize some form of internet gambling, after New Jersey, Nevada and Delaware, with more states considering following suit. Unlike the other three states, which allow people to legally play online games from their couch, Michigan would be the only one that requires players to visit a casino. That could be a way around a state constitutional amendment adopted in 2004, which requires a majority of voters statewide to approve any expansion of gambling in Michigan — unless it's to be offered at Detroit's three casinos or at casinos run by tribes. While it's possible supporters of the idea could finance a ballot drive to permit internet gambling anywhere in Michigan, it's not certain they'd win, partly given opposition from a coalition that has support from casino mogul Sheldon Adelson.

The bill also could set up a fight between Detroit's casinos and those run by tribes, because tribes contend the rules stack the deck against them by requiring them to give up their sovereign immunity to get licensed. Sen. Mike Kowall, of White Lake Township, said the brick-and-mortar requirement would bring stability and uniformity to a black-market system that offers little protection to users who turn over their personal information to unauthorized website operators, some of which are based offshore. He said he also sees the legislation he sponsored as "a revenue source for a state that sorely needs it." Kowall is basing his forecast in part on estimates shared by Amaya Inc., a Quebec-based company that owns online gambling brands PokerStars and Full Tilt. Amaya contends internet games at Detroit's casinos alone could generate between $45 million and $59.4 million in revenue based on figures from New Jersey, according to testimony provided by former Michigan Attorney General Mike Cox. His Livonia-based Mike Cox Law Firm represented Amaya in Lansing. An analysis conducted for Amaya by The Innovation Group, a consultant for the gaming and hospitality industry with offices in Colorado, Florida and Louisiana, estimated that the state could take in $32 million in tax revenue, given an average online gaming market that could top $319 million by 2019.

All figures used New Jersey as a model — except what's proposed in Michigan isn't comparable, because New Jersey allows internet gambling everywhere. Any advantage to Michigan casinos may be small at best, since people already can gamble there and internet games are still a small component of the overall gambling market, said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. "You're definitely constraining the market by making people go to a casino to play online," Schwartz said. "Would you drive to Home Depot to use Amazon to buy something? I probably wouldn't, as nice as Home Depot is. I want the convenience of getting something at home." Senate fiscal analysts say Detroit wouldn't benefit financially from any new tax on online games. And they're far less convinced the state would see a windfall. MGM Grand Detroit, MotorCity Casino Hotel and Greektown Casino-Hotel paid a combined $112.2 million in state tax revenue in 2016, and another $175.5 million to Detroit, according to data from the Michigan Gaming Control Board, which regulates casino gambling. The casinos' net win, or revenue left over after winners are paid, is taxed at 19 percent and earmarked for the state School Aid Fund and the city. Under the bills, internet gambling revenue would be taxed at 10 percent, all of which would go to the state. Because online gambling would not generate tax revenue for the city, Detroit could lose between $1.5 million to $4.5 million if online players siphon off the casinos' traditional gambling revenue, analysts with the nonpartisan Senate Fiscal Agency estimated. Kowall said he disagrees with Senate analysts' projections and believes internet games would enhance casinos by attracting more gamblers.

Other states

The issue is another example of the clash between technology and government, which often don't move at the same pace. Nevada offers online poker, while Delaware — a much smaller market — allows its three casinos to manage online poker and casino games. Nevada and Delaware also have created an online poker network for players from both states. New Jersey has the most robust system, with casino and card games run through its casinos. In the first year, the number of accounts rose from about 32,000 to more than 506,000. Last year, New Jersey's legal internet gambling revenue topped $196 million. Kowall said his legislation would allow Michigan to network with other states that also have authorized internet gambling to increase revenue. The legality of internet gambling has been an open question after former President Barack Obama's Justice Department in 2011 ruled that the federal Wire Act of 1961, which banned online gambling, only applied to sports betting. There is some uncertainty over the future, however. New Attorney General Jeff Sessions has said he could revisit the Obama-era decision.
And competition for gamblers pits privately owned casinos against tribal casinos in their own states, other casinos in nearby markets — for instance, Toledo — and expanding state lotteries. Online gambling made up much of the growth in U.S. gambling markets in 2015 and could offset losses that can happen as brick-and-mortar gambling operations steal customers from one another, the National Conference of State Legislatures wrote in December. MGM Grand Detroit, MotorCity and Greektown have not publicly taken sides on the three-bill package, though it's not a stretch to say they like the concept. "We believe that internet gaming could offer a new and exciting product for Detroit casinos," Gayle Joseph, vice president of communications for Jack Entertainment LLC, the Dan Gilbert-affiliated entity that owns Greektown, said via email. Representatives for MGM Grand and the Marian Ilitch-owned MotorCity Casino declined to comment. Mary Kay Bean, a spokeswoman for the gaming control board, said the agency believes the impact of the bills is still uncertain and hasn't taken a position. Amaya stepped up its lobbying efforts in Michigan to more than $109,000 last year, a 56 percent increase over the $70,000 the company spent in the state in 2015 — and 279 percent higher than $28,800 in lobbying expenses in 2014, according to state records.