Could A State-Run Online Sportsbook Work In Michigan?

Could a model where the lottery operates sportsbetting work in Michigan, or will there just be even greater levels of opposition?
State-Run Online Sportsbook In Michigan

As we explored last week, the state of Michigan will miss out on potentially millions if not tens-of-millions of dollars in revenues if it passes on legislating sports wagering in the state.

New Jersey, which has recently led the charge in successfully adopting sports betting, saw more than $95 million in wagers in the month of August, more than double that of the previous month. New Jersey boasts a population of 9 million people, ranking it right behind Michigan’s 9.96 million.

The speed at which the NJ market launched has also made it a temporary draw for bettors from neighboring Pennsylvania and New York. Michigan could similarly benefit by beating its neighboring states to launch, if it were not for the strong opposition that legislation has faced thus far.

Generally the states that are introducing sports betting are allowing physical sportsbooks to open in existing casinos and racetracks, with online options following after (connected to the physical licensees). This is a problem for Michigan, which has commercial casinos only in Detroit and has yet to come up with a plan that appeases the tribal casinos. Also, the racing culture has dwindled out of existence, with no certainty there will be any track open in future seasons.

But what if there were a potential way for the state to get sports betting operational quickly? A plan without the added regulatory obstacles of negotiating a fair tax rate and licensing process for operators, by circumventing the physical sportsbooks entirely? Michigan potentially already has infrastructure in place to run its own neutral and online-only betting operation with the nearly entire hold going right back into the state coffers.

Following the iLottery’s lead

Michigan’s incredibly successful online lottery is often pointed out as an example for other states to follow. Despite the many differences, the same model could work for an online state sportsbook, provided the right third-party were brought in to help operate it.

Since sports betting went online in New Jersey there are several different companies vying for market position in that area, any one of these could potentially bid to help Michigan launch their sportsbook for a reasonable percentage. Everything else could then be funnelled to the School Aid Fund, much like the $924 million that was provided by the lottery last year.

This would be even more effective if it could be functionally connected to the existing lottery database, allowing for one single account shared between iLotto and iSports and a common banking system between them.

And if the private company helping to operate the site offers superior lines to those of the private sportsbooks that later open in neighboring states, an advantage would remain there as well.

Precedents for state-run gambling

Politically, many people would object to the idea of the government owning and running a gambling enterprise. But beyond the obvious and definitive examples of state-run lotteries in 44 out of the 50, there have been many previous instances of individual states dipping into public gambling for their economic benefit.

In 2007 Kansas passed an Expanded Lottery Act to allow the government to build and operate four casino resorts in different regions of the state. Though Kansas already had a state lottery, racetracks, and tribal casinos, its constitution prevented private companies from owning betting operations, so the solution was to allow the state to be the owner while having private companies handle the actual execution.

North Dakota similarly explored the option of state-run casinos as recently as last year, though the measure was quickly voted down.

Beyond these, there are numerous state-run and county-run horse racetracks still all over the country. Some states, such as Pennsylvania, even tax their casinos extra in order to subsidize the racetracks, essentially using one gambling industry to prop up another gambling industry. This benefits the state in general, but especially the numerous citizens who are in some ways employed in ways connected to racing.

The political problem

The biggest difficulty, of course, is the state could expect even greater opposition from the tribal casino owners than the previous sports and online casino proposals faced.

It is important to remember that the tribes are not opposed to the concept of sportsbooks and online casinos, any more than they oppose the huge amounts of additional money they would make off them. The issue has been the complicated contracts they would have to renegotiate over new expanded licenses, and the possibility of inordinately heavy taxes on the new forms of betting. Especially if the arrangement would put them at a disadvantage to the commercial casinos in Detroit.

As mentioned, the proposal of state-run casinos in North Dakota died quickly after being introduced. This was in part to the perception that the idea itself was a betrayal of its tribal casinos, possibly even a punitive reaction by certain legislators.

Thus a state monopoly on sports betting in Michigan would face enormous resistance, as it essentially takes the industry off the table for private sportsbooks in the future. Interestingly, this could put the tribes and the commercial casinos on the same side of an argument.

MGM Resorts International, which owns the largest of the commercial casinos – the MGM Grand Detroit – recently announced a partnership with GVC Holdings to develop online casinos and sportsbooks for many of its locations (as they become legal). As its license in Michigan represents more than one-tenth of the company’s expected reach within the U.S. market, it clearly have major plans in store for its future sportsbook.

While a state operation could be a clean and efficient revenue source for Michigan, it is not politically expedient for any legislator to support. However, some potential still exists in simply exploring the idea, as it could bring all the possible private license holders together in opposition. It’s a good motivation for all parties to find common ground and finally stop delaying the legalization of both sports wagers as well as online casinos.

And if that doesn’t work and everything still fails to progress, more money for the School Aid Fund might start to sound appealing.


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