By: Nick Worden

Whether Gambling is Legal is Largely a Question of State Law

Gambling is a billion-dollar industry,[1] but it is tightly regulated. While there are federal laws regulating gambling, the federal government has largely left it to the states to decide what kind of gambling to permit within its borders.[2]

The purpose of this blog post is to provide potential gambling operators a primer for what gambling is legal in the State of Michigan.

The State of Michigan’s Definition of “Gambling”

Gambling has a specific legal definition and varies state-to-state. Michigan does not have a statutory definition of what constitutes “gambling,” so the courts are left to define it. Courts in the State of Michigan fall back on the common law definition of gambling, which has three elements:

  • Price or consideration
  • Chance
  • Prize or reward[3]

Each of the three elements must be satisfied for an activity to meet the definition of “gambling.” Price or consideration means that something of value is given up, whether money or some other kind of benefit.[4] Chance occurs when there is a “chance for profit if the player is skillful and lucky.”[5] It is not important to the chance prong how much a game is chance and how much is skill.[6] The last of the elements is prize or reward, which at common law, means the potential for reward or outcome.[7]

Types of Permitted Gambling

Not all gambling is illegal in the state of Michigan, but it must be expressly authorized by the state.[8] The types of gambling that are permitted in the state of Michigan now are: the state-run lottery, casino gambling, pari-mutuel wagering, bingo, and millionaire parties—casino-like gaming for the purposes of charity.[9] In December 2019, the Michigan State legislature passed  comprehensive legislation legalizing iGaming (online casino gambling), sports wagering, and fantasy sports leagues.[10]

Despite being legal, not everyone is entitled to operate these types of gambling. Below is a summary of some of the most common types of gambling, who can operate them, and how.

Lottery

The state-run lottery, for example, is run by the state and overseen by the Bureau of State Lottery. It is illegal to run your own lottery in Michigan.[11] Michigan courts construe the definition of lottery broadly. In addition to applying the three-pronged definition of gambling, courts will also apply a plain meaning definition.[12] If an activity looks like a lottery, then it could be a prohibited form gambling.

Casino Gambling

Michigan grants exclusive casino rights to Native American Tribes in the state of Michigan, except for three commercial casinos in Detroit: the MGM Grand, MotorCity Casino, and the Greektown Casino.[13] The commercial casinos are regulated by the Michigan Gaming Control Board (MGCB) and the tribal casinos are regulated by the National Indian Gaming Commission. Since Native American tribes are sovereign nations, the state of Michigan does not have general regulatory authority over the tribal casinos.

Bingo, Millionaire Parties, and Charity Games

All gambling charity games may only be conducted by a bona fide member of a qualified organization.[14] A qualified organization has a specific statutory meaning in Michigan:

A bona fide religious, educational, service, senior citizens, fraternal, or veterans’ organization that operates without profit to its members and that either has been in existence continuously as an organization for a period of 5 years or is exempt from taxation under section 501(c) of the internal revenue code of 1986, 26 USC 501(c).[15]

To operate a charitable form of gambling, one must register with the MCGB and pay a fee. The MCGB provides specific requirements for millionaire parties,[16] bingo,[17] and raffles.[18]

The December 2019 Reforms: Sports Wagering, iGaming, and Fantasy Sports Leagues

In December 2019, the Michigan State legislature passed a comprehensive amendment to its preexisting gambling laws.[19] Following the 2018 Supreme Court case that made it legal to bet on sports at the federal level,[20] Michigan made it legal at the state level. The caveat, however, was that sports wagering would only occur at casinos in the state.[21] Outside the three casinos or an authorized tribal casino, sports betting in Michigan is illegal.

Another update was to mobile gambling. Mobile gambling of casino-like games is called iGaming and is now legal. However, again, this is only allowed by Casinos.

The one area that of potential growth for startups is fantasy sports leagues. This is available to private parties.[22] The rules regulating the fantasy sports leagues are yet to be drafted and, at the time the bill was passed, were expected to be ready by 2021.[23] Once the MCGB drafts rules for these leagues, the MCGB will offer licenses. The fees for these licenses are steep: $10,000 initially, with a $5000 annual renewal.[24] This kind of gambling will be taxed at 8.4% by the state of Michigan but could represent a lucrative avenue for future entrepreneurs.[25]

 

[1] See https://www.businessinsider.com/the-us-gambling-industry-is-worth-240-billion-2014-9

[2]See https://www.law.cornell.edu/wex/gambling “Each State determines what kind of gambling it allows, where gambling can be located, and who may gamble.”

[3] Attorney General v. PowerPick Club, 287 Mich. App. 13, 46 (2010) (citing Automatic Music & Vending Corp. v. Liquor Control Comm., 426 Mich. 452, 457 (1986))

[4] See https://thelawdictionary.org/consideration/

[5] See State ex. rel. Com’r of State Police v. One Helix Game, 122 Mich. App. 148, 156 (1982).

[6] Id.

[7]Loot Boxes: “It’s a Trap!” Rebecca E. McDonough, Note, N. Ky. L. Rev. 62, 63 (2019) (citing

[8] See note 2, supra.

[9] See Theodore Wyman, 11 Mich. Civ. Jur. Gambling § 1.

[10] TheMichigan Gaming Newsletter, https://michigangaming.com/docs/newsletter/volume_25/Vol25-Issue35.pdf

[11] See M.C.L.A. § 750.372(1)(a) (“Except as otherwise provided by law . . . a person shall not . . . Set up or promote within this state any lottery or gift enterprise for money.”).

[12] Attorney General v. PowerPick Club at 37-38.

[13] See Theodore Wyman 11 Mich. Civ. Jur. Gambling § 5.

[14] See Theodore Wyman, 11 Mich. Civ. Jur. Gambling § 23.

[15] M.C.L.A. § 432.103a.

[16] https://www.michigan.gov/mgcb/0,4620,7-351-79128—,00.html.

[17] https://www.michigan.gov/cg/0,9673,7-403-95971—,00.html.

[18] https://www.michigan.gov/cg/0,9673,7-403-95973—,00.html.

[19] https://michigangaming.com/docs/newsletter/volume_25/Vol25-Issue35.pdf.

[20] https://www.nytimes.com/2018/05/14/us/politics/supreme-court-sports-betting-new-jersey.html.

[21] https://michigangaming.com/docs/newsletter/volume_25/Vol25-Issue34.pdf.

[22] https://www.lineups.com/betting/michigan/.

[23]https://www.detroitnews.com/story/news/local/michigan/2020/01/22/michigan-online-gambling-delayed-until-2021-by-rules/4545425002/. In light of the global pandemic, this likely will be later.

[24] https://michigangaming.com/docs/newsletter/volume_25/Vol25-Issue34.pdf.

[25] https://michigangaming.com/docs/newsletter/volume_25/Vol25-Issue34.pdf.