Tensions Running High In Michigan As Regulators Attempt To Parse Legal And Illegal Market Activity 

Brett Smiley

Updated on:

michigan state capitol

A new six-page, six-question attestation form issued by the Michigan Gaming Control Board in late April has left some licensed iGaming and sports betting suppliers in a lurch, unsure how to respond to the open-ended inquiry that the board itself has revealed is more about “information gathering” at this point. 

The “Illegal Gaming Attestation Internet Game Content Providers” form may be well-intentioned to stamp out support for illegal actors siphoning business and taxable revenue from Michigan’s legal market, but it has numerous stakeholders concerned, owing to their relationships and involvement in areas where the legality or illegality of iGaming is not cut-and-dried. Those operating globally are especially alarmed by some unclear questions and undefined terms and believe unintended consequences may follow from the Michigan regulators’ methods.

“The form does not define every single relevant term, such as what constitutes ‘illegal gambling,’” said gaming lawyer Susan Hensel of Hensel Grad P.C., who has served on both the Pennsylvania Gaming Control Board as the director of licensing and on the International Association of Gaming Regulators. “The language requires some interpretation, and it may make sense for companies with questions to go to the regulator and seek clarification. Normally this type of inquiry is done through the interviews of key executives as part of the overall background investigation. This is an up-front, in-your-face attestation, putting the company on record as to its answers to the questions.”

Asked by Casino Reports to clarify the term “illegal gambling,” MGCB Public Information Officer Lisa Keith advised, “the term ‘illegal’ is not a defined term on the form; therefore, the common and ordinary meaning of this term should be applied.”

Keith shared that the board has issued the form to relevant parties with “a filing date of June 1, 2024, to all game content providers licensed (or applying for a license) under [the Lawful Internet Gaming Act].”

Uncertainty has bred anxiety and confusion for some, especially around a market like Michigan, which has emerged as one of the premier and most profitable iGaming destinations in the U.S. alongside New Jersey — and one in which various businesses have invested substantial resources and want to protect those investments. 

“We’re reticent to provide information just to provide it, when the form doesn’t ask the right questions and we don’t know what it’s being used for,” said one industry source who has evaluated the attestation.

The crux of the problem centers on the delineation between white markets, gray markets, and black markets, and how all of that is parsed out by a U.S.-based regulatory body. As written, the MGCB’s new attestation appears to posit that there is only black and white.

Black, white, and shades between

One of the parties that seems to favor Michigan’s approach as a new standard-bearer for protecting regulated businesses and punishing actors outside those parameters is the Las Vegas-headquartered gambling supplier Light & Wonder, for which Howard Glaser, global head of government affairs and legislative counsel, has been at the forefront

“There are markets in which authorized iGaming is explicitly legal,” Glaser told Casino Reports. “There are markets in which online gaming is explicitly prohibited. Then there are the markets in the middle where maybe the law is silent. The first case and the last case should be easy. If it’s legal, it’s legal. If it’s illegal, it’s illegal. And so there shouldn’t be any objection to either a law or a regulation which says, don’t operate in markets that are explicitly Illegal.”

The gray areas exist mainly in non-U.S. territories where a jurisdiction may not require a license to do business as an operator or supplier, or the jurisdiction may not actively enforce laws prohibiting certain activity. It is not black and white everywhere, and a major complaint from some of the stakeholders now tasked with answering the attestation is that the MCGB is failing to appreciate the realities of operating a global business.

“We will need to work through these disclosures and come to our own decision on what we see as a suitability issue,” said MGCB Chief of Staff Kurt Steinkamp in an interview with Vixio, adding that the agency has previously had a form like the one at issue, but now it has been updated and renamed (previously it was a “Supplemental Disclosure”) with a response mandated.

Samples of the questions in the attestation form as written — note: there is confusion as to whether “applicant” applies to a subsidiary — include: 

5. Has applicant ever supplied any internet game or internet game content to any person who offered internet gaming to individuals residing outside the United States or its territories and who was not licensed to conduct internet gaming in those jurisdictions?

6. Has the applicant ever been a party to or been involved in any of the following in any jurisdiction related to illegal gambling operations?

a. Received a cease & desist letter,

b. Subject to disciplinary action, including, but not limited to administrative proceedings initiated by a tribunal or the governing agency of the jurisdiction in question,

c. Payment of fine or other penalty, restriction, suspension, or revocation of a license, permit, or certification,

d. Civil action before a tribunal or court of competent jurisdiction at the state or federal level; or,

e. Criminal proceedings before a tribunal or court of competent jurisdiction at the state or federal level.

While stakeholders have said the MGCB is certainly within its rights to know of licensees’ and prospective licensees’ activities, the overall lack of clarity about terminology and ultimately of intentions and potential consequences is what has raised alarm bells. According to one source, the attestation more closely resembles the discovery process in litigation and a fact-finding mission or “fishing expedition,” the source said pejoratively.

“It’s not clear how the MGCB will use this form,” said Hensel. “Is the form the end or the beginning of the inquiry? What follow-up questions lie ahead? It will take some time to understand how the MGCB will interpret certain undefined terms and concepts in the form and how it will use the applicant’s disclosures.”

Meanwhile, Glaser sets aside the gray areas to some extent, noting, “Nobody is going to disagree on which markets are illegal by the laws of that country. Right now, we’re not even dealing with the clearly illegal markets. There’s really no consequence for U.S. companies who are operating in illegal markets.”

Potential guidance from New Jersey

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The approach and experience in New Jersey may be instructive here. At least some stakeholders are hoping so.

New Jersey was among the first jurisdictions to legalize iGaming, back in 2013, and three years later, Division of Gaming Enforcement Director David Rebuck issued an advisory bulletin titled, “Impact of Operations in Grey Markets on Suitability for Licensure.”

Rebuck and the DGE wrote in part:

In effect, suppliers and licensees in New Jersey generally felt they understood where they stood by virtue of operating in different markets around the globe. 

In comparison to Michigan, said one industry source, “New Jersey has taken the view that they are not world police. Australia was a good example: Seven years ago they cracked down on the illegal market. As a result, New Jersey regulators began asking about involvement in Australia. But to take on enforcement related to jurisdictions that don’t focus on it themselves or make it a priority is a sort of odd route to take.”

On this route, there is also the question of whether the MGCB is acting within its legislative remit to carry out the intent of the state’s Lawful Internet Gaming Act, or whether it is effectively bypassing the legislature and local lawmakers by issuing this new form, collecting information, and deciding later what to do with it. 

Shipping C&Ds and taking names

Michigan regulators have puffed out their chests of late, issuing a cease-and-desist order in May to Harp Media B.V., the operator of Bovada, a popular sportsbook based in Curaçao that has operated illegally in Michigan and elsewhere. Bovada has signaled that it will pack up its things and exit Michigan, for now.

“This looks like an example of a state regulator responding to stakeholder concerns about illegal gambling,” Hensel said of the MGCB’s recent efforts. “They’re trying to flex what muscle they have at the state level. Michigan has been pushing for this of late, earning a reputation as a regulatory body intent on shutting down illegal gambling within its borders.”

One option that regulators in other jurisdictions have deployed, that may emerge as an option here, is to allow a grace period in which licensees could transition business affairs to expressly comply. 

Meanwhile, Glaser continues to beat the drum. 

“When the U.S. market opened up, there were many iGaming companies used to operating in illegal spaces abroad,” he said. “Now you come to the U.S. and really need to make a choice. Are you going  to stay in the illegal market, or join the regulated space? And this is the choice that’s facing industry players and many companies that have a foot in both.”

Nobody can say for sure where this open-ended inquiry will go as the MGCB works through disclosures received to date, but for now at least, they have the industry’s attention.

“We have generally received positive feedback,” Keith said. “Suppliers operating in the Michigan gaming market want to be on a level playing field. The disclosure of this information will enable the MGCB to evaluate potential suitability concerns and ensure that level playing field exists.”