.svg)
Body
It is one of the most perplexing questions in the U.S. gaming industry — why are other states so reluctant to regulate internet gaming when early adopters such as Michigan are generating so much more revenue from their online casinos than mobile sports betting?
Michigan is one of just six states to have regulated internet gaming, or iGaming, and has immediately emerged as a major market on a global scale since online casino games were first launched in January 2021.
After just more than 11 months of operations, Michigan joined New Jersey and Pennsylvania among the top five largest regulated online casino markets in the world for 2021.
In the 12 months through June 30, the state ranked as the seventh largest regulated online gambling market overall for both gaming and sports betting, according to recent VIXIO GamblingCompliance analysis.
Last month, Michigan also closed in on New Jersey as the largest iGaming market in the U.S., with online casino and poker operators reporting a record $130.9m in monthly revenue versus $131.3m in the Garden State.
The state had initially expected to generate just $18m in annual tax revenue from legal iGaming but ultimately received more than $200m, according to Henry Williams, executive director of the Michigan Gaming Control Board (MGCB).
“There’s no way we could have anticipated that. The revenue that came with iGaming was remarkable,” Williams said last week during a webinar hosted by online gambling trade association iDEA Growth and geolocation provider GeoComply.
Michigan state Senator Curtis Hertel, a Democrat who was the lead author of the state’s 2019 internet gaming legislation, agreed that Michigan was “certainly getting more revenue that we thought we were going to.”
Although sports betting remains more prominent both in terms of advertising and general public attention within Michigan, Hertel said he is among very few lawmakers who was not surprised to see iGaming generating far more for the state.
Compared with $201m from iGaming, online sports betting generated just over $7m in state tax revenue in 2021, in part due to unlimited deductions of bonuses and promotions related to sports wagering.
“iGaming is the number one way to get those tax dollars into our system,” Hertel said. “So I think it’s really important that you get those two things together.”
Since 2018, 25 states have legalized mobile sports betting, but only Connecticut and West Virginia, plus Michigan, have legalized iGaming.
2022 has been another frustrating year for iGaming advocates on the legislative front.
A bill in Indiana failed to even get a committee hearing before lawmakers adjourned in February. Another proposal quickly stalled in Iowa, while legislation introduced in New York has been considered more of a conversation starter for more serious deliberations in 2023 and beyond.
Joining Williams and Hertel on the iDEA/GeoComply webinar, 888 U.S. government relations director Laura Burd, a former Pennsylvania regulator, said it was inevitable that iGaming would expand to more states as policymakers draw comfort from technologies already being deployed for online sports betting and look to the revenues being generated by Michigan and other early adopters.
Hertel and Williams agreed one key to approval of iGaming in Michigan was getting both commercial casinos and tribal casinos on board.
Hertel said it was also essential to establish the right tax structure, noting an earlier version of his bill was vetoed by former Governor Rick Snyder and then had to be amended to increase tax rates from iGaming, with provisions also guaranteeing the City of Detroit would not suffer even if online gaming had a negative impact on land-based casino revenue.
Advocates also had to convince officials that iGaming would not negatively affect the Michigan state lottery, including its iLottery games, while racing interests were satisfied through the passage of a companion bill to legalize advance deposit wagering.
Still, the Michigan senator advised lawmakers and iGaming advocates in other states to “build a broad coalition” that extends beyond the gaming industry and might include groups that are “harder to say no to.”
It is also helpful for legislation to expressly allocate revenue “to things you can celebrate.” In Michigan, this has included a fund that supports firefighters that contract cancer in the line of duty.
Hertel advised lawmakers in other states not to treat internet gaming as a partisan issue and take confidence that no Michigan lawmaker, either liberal or conservative, was voted out of office because they voted for legal sports betting and iGaming.
He acknowledged that iGaming does raise legitimate concerns about problem gambling but in a state like Michigan, with more than two-dozen land-based casinos, that is not a reason not to regulate.
“All the bad things that happen with gaming, you’re already getting,” Hertel said, citing problem gambling and potential exploitation of consumers by unregulated offshore sites.
With iGaming now legal, “I’m 100 percent sure they are gaming somewhat more but they are doing so in a safer environment.”
Williams said the MGCB has been closely observing the use of new responsible gaming tools such as time and spending limits that are now available to gamblers as a result of legal iGaming.
However, he noted the regulator has also recently requested and received a $3m appropriation to support responsible gaming messaging amid aggressive advertising spend of more than $500m by online operators within Michigan.
In terms of regulatory oversight, it is only natural for officials in other states to feel apprehensive about a new offering such as online gaming, Williams said.
Regulation of online gaming is similar in many ways to traditional brick-and-mortar casinos, he said, but there are also lots of differences and it is important for new iGaming states to budget for their regulators to study the approaches of U.S. or international jurisdictions.
They should find there is no need to reinvent the wheel, according to the MGCB chief, who “would advise any state looking to do iGaming to copy Michigan’s law.”
