Christmas came early for poker players in Michigan with the passage Thursday night of the Lawful Online Gaming Act. It’s the culmination of a four-year effort from state Sen. Mike Kowall to legalize and regulate online poker and casino games.
Minutes after the Senate passed the amended H 4926 by a vote of 33-5, Kowall talked on the phone with Online Poker Report about how he gained support from the Indian tribes, horse racing industry and the City of Detroit — and the way it almost fell apart in the last days.
Bringing the gaming tribes on board
Back in June, Michigan Rep. Brandt Iden, writer of H 4926, managed to get the bill passed in the House by a margin of 68-40 despite opposition from the nation’s gaming tribes, who he promised that their concerns would continue to be addressed in the Senate.
The amended bill from the Senate fulfilled that promise, as it removed Sec. 16, which Iden had called the one point of contention preventing the Indian tribes from supporting the bill. This section essentially said that if, for whatever reason, federal law changes to prohibit tribes from providing online gambling that happens outside their Indian reservation, the commercial casinos in the state would be allowed to continue to run their online gaming operations.
The section was originally placed in the bill at the request of the three commercial casinos located in Detroit, who didn’t wish to invest money into the startup costs of supplying online gaming only to be told they have to stop because of a decision that doesn’t involve them.
Sen. Kowall was able to convince the commercial casinos to permit for the elimination of this section, which was considered a”poison pill” for the bill.
“It’s the first time I think in the history of Michigan we had the tribes and commercial casinos come together and agree,” Kowall said.
The last piece of this puzzle was to permit the newly established Division of Internet Gaming to permit Indian tribes as commercial casinos, which allayed tribal fears that delays from amending their compacts with the state could keep them from starting at the same time as the commercial casinos.
“I think the tribes thought initially we were trying to bull them over, and that’s not the case in any respect,” Kowall said. “From the very first day I composed this bill, we went and talked to the tribes first since we figured that would be the larger barrier. We had numerous meetings and workshops over four and a half years to the point that people were like,’Oh God, not another meeting,’ but we kept following it.”
One final delay in Michigan
Once the tribes were on board, Kowall thought the bill had cleared its final hurdle heading into the last week of this legislative session. He got the bill on the agenda for Tuesday, which would leave lots of time for it to return to the home to confirm the changes.
Then Detroit Mayor Mike Duggan came calling with some requirements that threatened to derail the bill. The bill was postponed until the last day of the session while Kowall worked to appease Michigan’s most populous city.
The result was the inclusion of a 1.25 percent fee on gross gaming revenues from online gaming into the City of Detroit from the commercial casinos in its jurisdiction. That area of the state earnings from iGaming goes toward neighborhood development programs designed to create jobs and concentrate on the blighted neighborhoods where the online gaming licensee’s casino is located.
“The Mayor of Detroit had worries of revenues and such coming from the casinos because it impacts their bond rating,” Kowall said. “With Detroit lately coming out of bankruptcy, the last thing we wanted to do is interrupt their funding sources.
“Detroit wanted some cash to visit a number of areas, mostly to the areas. I didn’t have a problem with that, and I understand what they’re trying to do.”
Kowall said that after Detroit was satisfied, there were no pushbacks on the requests from the City.
Pony up for the ponies
Another important amendment to the bill made by the Senate was that five percent of the taxes collected by the state (at a rate of eight percent of gross gaming revenue), up to $3 million annually, would go to the Michigan equine industry development fund.
This was an essential addition to Kowall, who has over 30,000 horses in his district.
“That’s going to help with purses in the horse racing industry in the state, which are pretty dismal,” Kowall said.
Away to the governor’s desk
Following the House affirmed the Senate changes to the bill with a 71-38 vote early Friday morning, the bill had been sent to the desk of Gov. Rick Snyder for final acceptance.
A touch from the outgoing governor has not been considered a given, but Kowall said he has been getting good feedback from the governor.
“I’ve spoken to him directly, I’ve spoken to his chief of staff, I’ve spoken to the person who cleans the floors in his office,” Kowall said. “Everyone has said he’s probably going to sign it. I’m optimistic he’ll sign the bill, particularly with Pennsylvania having gone in that direction.”
Michigan would become the fifth state to legalize online gaming, following Pennsylvania, New Jersey, Delaware and Nevada (poker only). Kowall mentioned a desire for Michigan to combine with those states for greater liquidity.
Still a long wait ahead
If the governor does sign the bill, that will begin a 15-month wait period before the beginning of online gaming in Michigan. The act takes effect 90 days after it is enacted into law. Then the Division of Internet Gaming will have one year to produce rules and issue licenses.
“We did 15 months for some of the casinos and tribes because they were concerned that some of the casinos can flip a switch and be up tomorrow,” Kowall said. “A couple casinos are not ready to go just yet either, but this was for the tribes, though it wasn’t a huge sticking point.”
Kowall not concerned about the constitutionality
Kowall stated that he’s”not at all” concerned with the constitutionality of this bill as passed, though he admitted that would not necessarily stop a legal challenge from occurring from a group wanting to stop legal and regulated online gaming. Considering that the 15-month moratorium, he’s optimistic that any legal challenge would not cause a delay.
“We have had the former attorney general look at it, the current attorney general look at it, we’ve bounced off it constitutional attorneys from one end of this state to another, and they said we are great,” Kowall said. “Anything can be challenged, but I do not think it’s likely to. There’s so many sites out there, so many bad actors. This is a consumer protection piece.”
Change in OLC opinion should not stand in the way
The opening of this bill mentions the 2011 opinion issued by the Department of Justice’s Office of Legal Counsel that translated the Wire Act as only applying to sports betting, allowing countries to legalize and regulate internet gaming and capture the earnings for the benefit of state governments.
As OPR reported earlier this week the Department of Justice is preparing another opinion that could undo the earlier one.
Kowall indicated that he doesn’t think a change in the OLC opinion could stop Michigan from moving forward with internet gambling.
“After we get it done, it falls over 10th Amendment state rights, and I think that they would be hard-pressed to undo that,” Kowall said.
Kowall leaves a lasting legacy in Michigan
After serving the people of Michigan for much of the past 20 years, from 1998 to 2002 in the state’s House of Representatives and from 2011 to present from the Senate, Kowall has been termed out of office. His wife, Eileen, was in the House from 2009 to 2014, making them the first married couple to serve in the Michigan legislature at the same time in 25 years.
A Republican, Kowall was Majority Floor Leader, the second-highest place in the Senate, for his final term. He used that position to pursue causes he thought were important to the state and its people, such as online gambling, and he finished his final day in session with a big win.
“I came to Lansing to perform a few things I got done, eliminating the single business tax and placing an emphasis on skill trades,” Kowall said. “Then I got involved with autonomous vehicles and got that done.
“This was yet another project I saw to add revenue to the state that was going uncollected. I’d have been frustrated if I had not gotten this done. Now I’ve actually done all I set out to do from the state. I’m feeling pretty good right now about the job I’ve done and where this nation is going.”