Michigan regulator: "We hope legal online wagering will discourage use of the black market"

The Michigan Gaming Control Board greenlighted 10 operators and their platform providers to launch online gaming and sports betting at noon on Friday. Richard S. Kalm, Michigan Gaming Control Board (MGCB) Executive Director, spoke with Yogonet about this new market in the US.

"Under current state law, the three commercial casinos in Detroit and the 12 federally recognized tribes that operate Class III casinos in Michigan are the only entities that qualify for online gaming and sports betting licenses," he said, adding that 10 launched on Jan. 22 and others will follow suit after all regulatory requirements are met in the coming weeks. Previously, the agency granted 15 provisional licenses to platform providers who have partnered with the 15 operators (the three commercial casinos and 12 tribes), he explained.

What do you expect to see and analyze in particular during the testing days?

We want to make sure the operators and platform providers meet standards for: geolocation, internal controls and technical security standards, integrity monitoring, cybersecurity and technical standards. We asked for certification from independent testing labs and required games to be reviewed and approved by the MGCB Gaming Lab. Also, we worked to ensure certain key personnel from these organizations have Michigan occupational licenses. We will ask the operators and platform providers to test their offerings to ensure they are ready for launch.

Michigan is the 20th state to legalize online sports betting. Which specific learnings from the other states have you acquired and applied to your program and guidelines? What are the main concerns, requests or suggestions you have received from operators throughout this process and even today?

In drafting our rules, the MGCB borrowed heavily from Indiana, New Jersey and Pennsylvania. The operators and platform providers gave us key input on our rules during promulgation, which helped guide our work. We wanted the rules to work for them as well as for us as regulators.

Detroit casinos saw their worst yearly revenue in 2020, which was more than halved due to the pandemic restrictions. New Jersey handled $4.6 billion in sports bets in 2019 and 84% of that was wagered online. Do you think Michigan will see a similar share for online sports bets? What are your sports betting revenue estimates for 2021 and following years, and what are your expectations for this launch in terms of recovery for the land-based gaming sector? 

Although we report gaming revenue monthly, we do not always know the causes for revenue differences. Our agency's role is to regulate and report, but we leave it to the Legislature to determine what forms of gaming may supplement or offset other forms of gaming. In December 2019, the Michigan Legislature’s House Fiscal Agency estimated tax revenues and payments (based on a 50/50 market split between commercial and tribal casinos) for the Lawful Internet Gaming Act. You can see the three tables on pages 12 and 13 of the report. Their assumptions were based on 2018 AGR, or adjusted gross receipts, from the casinos. The House Fiscal Agency did a similar study for sports betting.

Previous opposition to online gaming often centered around its possible impacts on iLottery. Further, the City of Detroit “hold harmless” provision was put into the law to protect the city’s retail casino tax revenue from begin affected negatively by online gaming. The provision seeks to help the city recoup lost gaming tax revenue if the city of Detroit collects less than $183 million in a fiscal year.

Which role will pent-up demand play? How do you expect this launch will impact the online black market?

Based on inquiries, we know there is a lot of interest in online gaming and sports betting. There are a lot of sports fans in Michigan, and the casinos normally draw many, many visitors each year. Because of the pandemic, the State of Michigan has imposed capacity limits on the commercial casinos and also closed them twice during 2020. Patrons were unable to visit the casinos from mid-March to early August and again for three weeks in late November and early December. Certainly, casino patrons are likely to show interest in online gaming and sports betting because casino access has been limited. Sports fans also will be interested especially as some of the key sporting events such as the Super Bowl and the NCAA basketball tournament will take place in February and March.

We hope Michigan citizens and visitors will feel more secure using a regulated online gaming or sports betting site and legal online wagering will discourage use of the black market. It’s important to note the MGCB does not regulate retail gaming or retail sports betting at tribal casinos, which are authorized under federal law. Unlike the three commercial casinos in Detroit, the tribal gaming commissions and management teams are not subject to state-issued public health orders because of tribal sovereignty.