MI Gaming Legislation Update – September 2019

Horsemen,

SPORTS BETTING IN MICHIGAN

Last week, a sports betting bill passed the House Regulatory Reform Committee, largely along party lines. The bills, which now head to the House Ways and Means Committee would create a Division of Sports Betting within the Michigan Gaming Control Board to create rules, license sports betting operations and oversee licensees. The non-tribal operations would be taxed at 8 percent (after payments to betters and the federal government) under the bills and licenses would cost $100,000 or $200,000 depending on the facility.

Licensees who would pay the 8 percent tax would have it distributed in the following way; 30% to the city containing the casino (Detroit) 55% to the sports betting fund), 5 % to the School Aid Fund, 5 % to the Michigan Transportation Fund and 5% to the Michigan Agriculture Equine Industry Development Fund. The House Fiscal Agency predicts the following tax revenue distribution based on two different betting market scenarios.

However, this structure is expected to change as negotiations with the administration continue this fall. There is also said there are some risks associated with tribal gaming as tribes could elect to stop making revenue sharing payments if they deemed the legalization of sports betting an expansion of gaming, which would void the terms of the compact with the tribes.

It’s critical to remember that based on the current bills, Sports betting is likely to raise less than $500,000 dollars for horse racing in the state of Michigan. If anyone suggests that sports betting will save the industry, please remind them that it‘s not enough revenue to make Michigan competitive with neighboring states like Ohio and Indiana.

I-GAMING IN MICHIGAN

However, the bill is tie barred to an iGaming bill that The Governor currently opposes that would allow casinos to put traditional casino games like slot machines and table games online. That legislation (HB 4311) is opposed by the Governor because of the potential harm to the State School Aid Fund (SAF), which likely would realize reduced revenues under House Bill 4311.

Currently, a wagering tax of 19% is levied on casino AGR. Of that amount, 42.6% ($0.081) is distributed to the SAF. Under the bill, internet gaming AGR would be taxed at a rate of 8%, with 5% ($0.004) of the tax revenues deposited in the SAF. Therefore, every dollar of AGR lost at brick-and-mortar casinos due to internet gaming would result in a $0.077 loss to the SAF.

Additionally, Internet gaming also could reduce lottery sales, mainly by diverting participants from the iLottery platform or instant ticket sales, because many of the games offered could be considered substantially similar from a user perspective. Payouts for individuals playing casino-operated games would be higher. Higher payout rates likely would lead to increased internet gaming play at the expense of iLottery and instant ticket play. Lottery AGR (net revenue) is deposited in the SAF.

Therefore, any diminishment in lottery sales from the introduction of online gaming would result in lower SAF transfers from the Bureau of State Lottery. In 2017 net revenues from iLottery totaled $80.0 million. Based on net revenues totaling 12% of total sales for iLottery games and 27% of total sales for instant ticket games, every dollar of wagering iLottery lost to internet gaming would require $250 of internet wagering to hold the SAF harmless. Every dollar of instant ticket sales lost to internet gaming would require approximately $550 of internet wagering to hold the SAF harmless.

The I-gaming legislation, as drafted, does send 5% of the 8% tax on net revenue (after payouts to betters and the federal government) or .004% to the Michigan Agriculture Equine Industry Development Fund, but that revenue is capped at 3 million dollars annually and to hit 3 million dollars the state’s government would need a net i-gaming revenue of 750 million dollars. Assuming the net return on i-gaming is about 6%  the state would need to see i-gaming wagers of $12,500,000,000 (12.5 Billion) before horsemen saw 3 million in revenue.

HOW TO SAVE HORSE RACING

Why are we spending so much time focusing on the exact numbers needed to see new revenue for Michigan horsemen? Because you need to know that Michigan needs real tools to be able to compete and grow the horse racing industry in Michigan.

Rep. Hank Vaupel and Sen. Dan Lauwers both have legislation (HB 4310) that would authorize advanced deposit wagering in Michigan. It would allow 3rd party vendors like Twinspires and Expressbet to contract with Michigan tracks to accept wagers if they remitted the due taxes (3.5% on gross wagers) to the Michigan Agriculture Equine Industry Development Fund. We believe this legislation could add perhaps 1.5 million dollars in revenue to horse racing in Michigan.

However, the MHHA is opposed to this legislation as it is currently written because it would prohibit any new tool in the future including historical racing machines, video lottery terminals, pull tabs, or any other electronic or mechanical devise. Essentially any tool being used in states with more robust horse racing industries than Michigan.

We continue to advocate for the removal of that prohibition, which would allow advanced deposit wagering to come online now, and the ability to continue to advocate for new tools that could fundamentally grow horse racing in Michigan.

As always, if you have any questions please feel free to contact the MHHA for more information.