An Update on the State of Michigan's Stance on Daily Fantasy Sports

Although a desired solution may be to have nationwide regulations and oversight, if we take one look at our federal legislature in its current state, there is clearly no way they will clarify the law regarding DFS anytime soon. This leaves states in a tricky position because there is still some uncertainty as to how effective or durable state laws on DFS - if and when enacted - will be. State-by-state laws are the settled on short-term solution to the legality of a growing industry's operations. The law needs adequate clarification as soon as possible.

Many states are taking initiative and pushing legislation regarding daily fantasy sports (DFS) hoping to clarify where the industry operates under the law. Virginia led the way as the first state to regulate fantasy sports with its Fantasy Sports Act, requiring DFS operators to (a) enforce a minimum age of 18 to play, (b) register with the designated regulating department, (c) pay a $50,000 registration fee, and (d) take various consumer protection steps such as securing player data and funds as well as preventing operator employees and their immediate family members from playing. Last week, two more states took large steps. Indiana became the second state to regulate fantasy sports with a law that (a) designates fantasy sports as a game of skill, (b) created a division to oversee paid fantasy sports within the state, (c) mandates a $50,000 licensing fee (though that initial fee could increase in the future) followed by a $5,000 renewal fee, and (d) specifically bans fantasy sports contests involving college football and basketball, which makes sense because betting on college sports is illegal under current federal law. Also, Massachusetts has DFS regulations moving through its legislature that is publically supported by DraftKings and FanDuel and hits big on combating the vulnerable with consumer protections like requiring a minimum age of 21 years old to play and instilling "truth in advertising" standards in addition to those akin to Virginia's protections.

For those in my home state of Michigan, we are left to deal with outdated law and a passive movement dragging its heels holding onto weak proposed legislation that will likely never pass. Senate Bill No. 459, which seeks to legalize fantasy sports in Michigan, is a flop.

Why So Weak?

A direct comparison of the bill proposed in Michigan to, for example, the law enacted in Indiana or Massachusetts shows a massive, blatant weakness. As stated in one of my blog posts last September, Senate Bill No. 459 is a general catch-all legalization of fantasy sports as a game of skill in Michigan. A number of other states have proposed similarly general bills. A number of states also have not seen those bills move through the legislature at all, and if the bill happens to progress forward, it eventually falls short somewhere along the way. Notice a pattern?

Regulations are necessary. The substantive issue is not whether DFS is a legal game of skill or illegal game of chance but rather what regulations are required for DFS to operate within the state. It is not even a question of what "should" be the issue but what "is" the issue. Syntax is important, and that is what Indiana and Massachusetts have devoted time toward to develop a law that carefully regulates an industry that actually welcomes such regulations with open arms. Why? It clarifies the law. Generalization in federal law is what got us into this grey area in the first place.

Senate Bill No. 459 was basically a knee-jerk reaction to the Michigan Gaming Control Board's statement that it believed daily fantasy sports to be illegal under current Michigan law. If Senator Curtis Hertel, Jr. was to amend the bill he introduced or, better yet, scratch it and take the time to draft an entirely different bill that lays out consumer protections that interest the state and citizens alike, then Michigan could have a law with staying power.

What Is Standing In Its Way?

Michigan received a good deal of attention when Senator Hertel introduced the bill attempting to legalize fantasy sports back on September 9, 2015. On that same day, the bill was sent to the Senate Judiciary Committee for consideration. Since September 9, 2015, it has sat patiently waiting for more attention from the legislature to move one way or the other. The bill has gone nowhere. That is the update on the State of Michigan's stance on DFS. Unfortunately, a bill cannot move itself, and it is up to those behind the proposal and those who additionally support the bill to satisfy whatever qualifications necessary to gain the requisite support from those with the power to move along laws.

An amendment to Michigan's state constitution requires a statewide vote before any new form of gambling game can be approved. Legalizing or placing regulations on DFS would definitely fall within that amendment's scope. A statewide vote would likely be a small bump in the road considering the shifting public attitude toward DFS. So long as the proposed law being voted on has well thought out regulations in place that meet the state's and citizens' desires, it would likely pass.

The real hurdle is in the Senate Judiciary Committee where the bill is chillaxin' now. Senator Rick Jones, who chairs the committee, said that the bill would not be considered until the tribal casinos give the green light. From his perspective, he is afraid that the Indian tribes would stop paying some of their casino revenues if lawmakers allowed fantasy sports betting as a legal competitor. That fear is not completely unwarranted. Back in August, for example, one band failed to make a $7 million payment to the Michigan Economic Development Corporation because, reportedly, it believed the state's electronic pull-tabs and online lottery violated a 2007 deal. That fear is not completely warranted, though, because from what I can see, the tribal casinos in Michigan have not taken a position on legalizing fantasy sports.

Regardless of the hurdles - present or future - these are some of the questions Michigan needs to explicitly answer before any kind of progress can be made on the legality of DFS operations within the state:

  • What is each of Michigan's Native American owned casinos' position on DFS, for real - Are they truly threatened by it, would they be open to having a voice in regulating the industry, would they endorse it at all, or are feelings mixed?
  • Is the state willing to regulate and enforce DFS operations - If so, where will it get the money, and who will oversee it? If not, why, and is it willing to enforce present law and prosecute fantasy sports operators and/or players?
  • Is the state looking to get anything monetarily from the DFS industry - Does the state see an operating licensing fee as attractive to help regulate the industry's operations? If so, would that disincentivize smaller operators from engaging business in Michigan? Is the state's goal to shrink down the operating market for theoretically simplistic regulating? If it is not, what would a reasonable licensing fee be to fund a regulating entity that welcomes large- and small-scale DFS operators?
  • What consumer protections is the state concerned with - Forms of "insider trading", misleading advertising, monitoring internal business practices and the contest money routes, protecting minors, combating gambling addiction, and/or a competitive playing field?

DFS is still illegal in Michigan. It does not look like it will change in the very near future, but if the state really wanted to, it could make some quick, progressive moves.