Representative Brandt Iden is working to push through a bill to regulate online gaming in Michigan, with the proposal building momentum in the legislature. However, the state governor has raised concerns about igaming cannibalizing state lottery revenue. Stop us if you’ve heard this one before.
Brandt Iden may feel as if he’s living in Groundhog Day.
The Michigan representative is in the process of shepherding a proposal to legalize online gaming in the state through the legislature. The bill would make commercial and tribal casinos eligible for licenses, setting a $200,000 license fee, and an 8% gross revenue tax.
However, Michigan’s governor has concerns. Namely that state lottery revenue will be diverted into igaming, reducing funding raised for education in the state.
If this all sounds familiar, that’s because history is repeating itself.
In late 2018, a similar proposal from Iden was passed by the Michigan House and Senate, only for Republican governor Rick Snyder to veto the bill. Fast forward a few months, and now Democrat governor Gretchen Whitmer is repeating her predecessor’s argument.
Iden is exasperated and confused—but still hopeful of reaching a compromise.
First and foremost, he says, the theory that igaming eats into lottery revenue “just isn’t true.” He points to New Jersey, where the lottery and online casinos coexist in harmony.
“[Someone] who plays blackjack online is not the same person that currently plays the lottery,” he says. Also given short shrift is the notion that there is a finite number of players and dollars at stake, something he says is “just false.”
Hopes of compromise
However Iden is willing to compromise, having tweaked the proposal to direct all revenue generated through the tax on igaming to the School Aid Fund, used to fund schools teaching children from kindergarten to the Twelfth Grade.
“What I’ve done is given [Whitmer] more dollars to put into education,” he says. “Education is the number one concern. I’ve given her more dollars to that end.”
He points out that if lottery revenue does start to decline in the wake of online gaming being rolled out, igaming taxes will automatically make up any shortfall.
However, Whitmer’s office has suggested a different approach: no online slots and implement a new tax rate that will see a rate of 40% set on revenue of $8m and above. But as Iden points out, this just creates a situation that aids offshore operators.
“[It’s] just not feasible for anyone in the private sector to make a go of it at that tax rate,” he explains. “The reason I started this is because it’s happening online in Michigan, illegally, and if you want to protect consumers you have to incentivize them to stay away from the unregulated sites, and you can’t do that with an astronomical tax rate.”
However, he admits that to find a compromise, he will likely—and reluctantly—have to raise the tax rate. This won’t happen without further efforts to make the governor and her team better understand the market, however.
“I’m trying to educate her team on what’s happening in other states and across the globe in terms of igaming and sports betting,” Iden says. “Gaming is very complex and I don’t think her team has educated themselves enough about the issue.
“It’s a case of understanding what’s going on in the marketplace. The doomsday scenario is not actually happening anywhere, so why would it happen in Michigan?”
The struggles of legalizing igaming have not deterred Iden from continuing his regulatory push.
Next up is sports betting. He has been working on a sports betting bill with state and industry stakeholders, that he expects to be filed “very shortly.”
While he believes it is important to keep the sports betting proposal separate from igaming, he admits that the two will “overlap and intertwine” as a result of the mobile component.
“Sports betting can’t be successful without a mobile component,” he says. “[Even] if we only get sports betting, it would have to be online for the state to actually receive significant dollars in the long run,” Iden explains.
Ultimately, however, he aims to convince Governor Whitmer to pass a series of gambling expansion bills, with the legislature coming together on a deal that covers both igaming and sports betting, similar to the package recently passed in Illinois.
This isn’t a case of trying to strike while there is support for gaming expansion, he says, but more one that reflects the reality of state legislatures.
“The last time the Gaming Control Act was updated was about 20 years ago,” he says. “Gaming is complex, and Michigan just hadn’t tackled it in years, so if we don’t tackle it now, we simply wouldn’t address it for another 20 years.
“That’s the political reality—and why it’s important to be able to broker a deal that is both profitable for the private sector, and takes care of the consumers.”
The pressure is certainly on. With Michigan’s legislative session running until December, Iden at least has time on his side. However he has significant obstacles to overcome if he is to prove that the legislature isn’t stuck in Groundhog Day.