Michigan Tribe To Respond With Sports Betting Hearing After Lawmaker Revives Controversial ‘Integrity Fee’ Debate

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Will Michigan be ground zero for the “integrity fee” debate in 2019?

According to the lawmaker leading the online betting debate in Michigan, the controversial fees could be part of upcoming legislation. While the commercial casino industry’s opposition is well-known, gaming regulators for one of the top tribal groups in the state will address the “integrity framework” in a hearing slated for November 30, MI Bets has learned.

Tribal casinos sprinkled around Michigan outnumber the Detroit commercial casinos 8:1, so a Michigan sports betting bill will need at least some tribal support.

Already with an online gambling bill on the table that has preliminary provisions for establishing legal and regulated sports betting, Michigan State Rep. Brandt Iden, a Republican, told Reuters last week that he now is open to the fees after “spending significant time with the leagues.”

Detroit is home to NBA, NFL, NHL, and MLB franchises. The leagues have so far failed in convincing any state to approve a mandated royalty, but it appears they have established a foothold in Michigan. It might be one of the last stands for the integrity fee debate.

The online gambling bill, which is awaiting a possible Senate committee vote, still has a narrow window to become law this year (less than two weeks worth of session days remain). Its passage is unlikely. Even if it cleared the remaining hurdles, another piece of legislation would be needed to flesh out sports wagering.

Problem with the fees

The leagues have lobbied elsewhere for a 1% fee on handle, which could translate to about 20% of the sports betting revenue, thanks to the hold for sports wagering falling well below many other casino games. Sportsbooks typically retain about 5% of the handle in the form of winnings. Once in a while the books don’t hold onto anything at all and have a losing month.

A 2017 study from Oxford Economics projected that a Michigan sports betting industry will see $9.5 billion in annual handle and more than $600 million in revenue. That assumes online/mobile adoption and a 10% tax rate. Michigan commercial casino gaming revenue is currently taxed at 19%.

Under the same model of convenience for sports bettors, a state tax rate of 15% on sports betting win is projected to drop the market to $7.8 billion in handle and $550 million in revenue, according to the study.

The study factored in projected revenue sharing payments between tribal casinos and the state.

As one can see, a 1% integrity fee on the handle could ship nearly $100 million directly to the leagues via Michigan sports betting operators.

According to the American Gaming Association, the leagues collectively could benefit to the tune of $4.2 billion from widespread regulated sports betting in the U.S. That’s without the royalty.

However, the leagues are still fighting for every dollar, even if it could undermine the regulated industry by allowing black market websites to compete with those in the white market burdened by the integrity fee.

Tribal casinos

Michigan has 24 tribal casinos that are regulated by the federal government, not the state. Michigan has 12 separate compacts with the tribal groups for what is known as “Class III” gaming. The first one was brokered in 1993 and the most recent was in 2007. In 2017, the tribes collectively remitted $57.3 million to the state based on their gaming revenues.

The state’s take was down 4.3% from $59.9 million in 2016.

The Pokagon Band of Potawatomi Indians, which operates three casinos, led the way last year with $20.2 million in revenue sharing with Michigan. A state report said that figure represented 6-8% of net gaming win.

The Pokagon Band Gaming Commission is scheduled to discuss sports betting on November 30 in New Buffalo. The tribe will engage in an “appraisal” of “U.S. sports betting.” The meeting’s agenda says that the Commission will look at “Proper Regulatory and Integrity Framework,” as well as efforts in Lansing specifically.

The agenda is sparse, so it appears that the hearing centers on sports betting.

While the Pokagon Band of Potawatomi Indians is formally discussing sports betting, others are not quite there yet. For example, the Gaming Commission for the Bay Mills Indian Community, one of the first tribal gaming operators in Michigan, told MiBets that it hasn’t yet ironed out its position on sports betting.

Iden has long said that he wants to craft legislation that both the commercial and tribal gaming groups support.

Detroit casinos

The Michigan Constitution allows for three Las Vegas-style casinos in Detroit. The casino industry has been united in opposing the integrity fee.

In July, it was announced that the NBA and MGM Resorts, which owns and operates MGM Grand Detroit, had forged a partnership involving official NBA data. The deal seemed to undermine the idea of a state government mandating that a casino operator fork over a portion of its handle to a league.

If the competing lobbying interests can make mutually beneficial deals without a state legislature’s assistance, what is the point of an integrity fee provision? Iden, who wasn’t available for comment Monday, could be posturing. In June, he called the fee a “a non-starter.”

His comments to Reuters came at the U.S. Sports Betting Policy Summit in Washington, D.C. The leagues have been lobbying on Capitol Hill for a federal framework.

If Iden remains serious about the integrity fees back in Lansing, all eyes will be on his Regulatory Reform Committee through much of next year. “My goal is to spend 2019 on this,” Iden told Sports Handle.

Despite the potential for Michigan sports betting, Dan Gilbert’s Jack Entertainment LLC recently sold the Greektown Casino-Hotel for $1 billion in cash to VICI Properties Inc. and Penn National Gaming Inc. The latter acquired the operations of the casino for about $300 million. Penn National, which also has a casino in nearby Toledo, Ohio, recently opened Pennsylvania’s first sportsbook.

Greektown is the smallest Detroit casino in terms of gambling revenue (about a quarter of the market), but its revenue was up more than 6% through October of 2018 compared to 2017. Comparatively, through October, Detroit casinos won $1.19 billion from gamblers, up just under 2% compared to the $1.17 billion won during the same period in 2017. The Greektown deal is expected to close in mid-2019, according to a press release.

Expect Penn National in 2019 to advocate publicly for no integrity fee in Michigan, using its successful sports betting operation in Pennsylvania as an example for why a royalty is not necessary. Pennsylvania casinos were successful in convincing Keystone State officials that the integrity fee was highly problematic.

Brian Pempus

Brian served as a senior reporter and online content manager for Card Player Magazine for nearly a decade before joining USBets in October 2018. He is currently focused on legal and regulated sports betting and online gaming. He's an avid jiu-jitsu practitioner in his free time.

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