Michigan Governor Shoots Down iGaming Bill

In an unexpected development, Michigan Governor Rick Snyder (l.) vetoed state Rep. Brandt Iden's online gambling bill, which had passed both the House and Senate with bipartisan approval. Snyder, who left office on January 1 due to term limits, said he was concerned online gambling could cannibalize state lottery sales and "encourage gambling by making it much easier to do."

Michigan Governor Shoots Down iGaming Bill

In a surprising move just days before leaving office, Michigan Governor Rick Snyder vetoed HB 4926, the Lawful Internet Gaming Act, and its accompanying bills HB 4927 and HB 4928–legislation that would have made the state the fifth to allow online gambling. The Michigan House approved the bill 68-40 in June, and the Senate recently approved it 33-5; after changes were made, the House re-voted, approving the measure 71-38.

In his veto letter, Snyder, who’s leaving office due to term limits, wrote he appreciated the effort lawmakers had put into the bipartisan bill, which had the support of the state’s commercial and tribal casinos. But he wrote, “Due to largely unknown budgetary concerns, I believe this legislation merits more careful study and comparison with how other states have, or will, authorize online gaming. To be blunt, we simply don’t have the data to support this change at this time.”

Snyder said the lower tax rate for online gambling could cannibalize state lottery sales, affecting the School Aid Fund. “For each $10 of spending on the lottery, the School Aid Fund receives approximately $2.76. Under HB 4926, because of the School Aid Fund,” Snyder stated. In 2017, that education fund received $924 million.

Snyder also wrote, “I am concerned that the internet gaming bills will encourage gambling by making it much easier to do. I do not think it is appropriate to sign legislation that will effectively result in more gambling, with a reasonable chance that the state could lose revenue that could be helpful in dealing with social service issues that are ordinarily attendant to increased gambling behavior.”

The legislation’s sponsor, state Rep. Brandt Iden, said, “The veto pen came out for my entire gaming package, which is incredibly disappointing. We had no idea this was coming. With this many stakeholders on board, it took us two years to get to this point, and it’s the first time in any state history that we had all the parties that were supportive of the bill on the same page. We had alleviated any concerns, so this is a very surprising outcome.”

Iden added Snyder’s reasons for vetoing the measure, including taking money from the state-run lottery and an expansion of gambling, didn’t seem logical. “I think it’s unfair because you’re taking a state entity like the lottery and trying to compare it to the free-market system of other online gaming platforms. If your problem is a concern for the lottery, you’re never going to be comfortable with an iGaming bill because it impedes on the state’s monopoly on the lottery. That’s not a free-market approach,” Iden said.

In addition, Iden said he does not consider online gambling an expansion. “With 23 tribal casinos across the state plus commercial casinos, anyone can gamble in Michigan at any time. This is a new platform for folks to play on,” he said. Iden also stated if Snyder truly was concerned about the expansion of gambling to the internet, he would not have approved the lottery moving online in 2014.

Besides HB 4926, another Iden-sponsored bill that passed the House but not the Senate called for a tax rate of 8 percent of adjusted gross revenue on sports betting and online gaming. In a reference to professional leagues’ 1 percent desired integrity fee, the bill stated, “No other tax or fee may be imposed by agreement or otherwise on a casino licensee by this state or a political subdivision of this state for sports betting or internet gaming.”

Iden said all stakeholders agreed on the 8 percent tax rate since it would offer profits for operators and revenue for the state. Nevada taxes gambling at 6.75 percent.

Iden said he plans to reintroduce the online gambling bills in the 2019 legislative session, along with a statutory framework for sports betting. However, re-introducing the bills to a new legislature will require another round of committee meetings and House and Senate votes before the bills can be placed on the desk of incoming Democratic Governor Gretchen Whitmer. She has expressed support for sports betting but her stance on online gambling isn’t known. Also, several new lawmakers will be joining the legislature.

Iden said, “I saw over the course of the last two years the time it takes to educate people on these issues and get them up to speed on where we are. I’m going to need to do that again, but I’m fully prepared to do so and confident we will have a successful 2019. It took a long time to get here, and this is a bump in the road, but I’m confident it will get done.”

Dave Waddell, a partner in Regulatory Management Counselors, based in East Lansing, believes that Michigan could be a leader in iGaming if the bill returns and is passed.

“If the legislature takes action to re-introduce and pass the legislation that the governor just vetoed, Michigan could become a model state for other states to emulate when it comes to iGaming,” Waddell said. “With a new governor just taking office, and with a new crop of legislators also coming into office, it likely will take several months for the bills to be reintroduced and passed.

“In developing the bills that were just vetoed, Michigan took a realistic approach in setting its tax rate to allow operators to be successful while generating additional revenue for state and local interests. Based on prior history, the Michigan regulators would be likely to make sure they use best practices when it comes to developing practical, yet robust regulatory environment.”

Las Vegas Sands Chairman and Chief Executive Officer Sheldon Adelson’s Coalition To Stop Internet Gambling had urged Snyder to veto the bill. Adelson and his wife contributed more than $123 million to conservative candidates and causes in 2018.