In most states, daily fantasy sports contests operate in a grey area. In other words, the state neither expressly legalizes nor bans the activity.
However, that’s not the case in Michigan. Near the end of 2019, Gov. Gretchen Whitmer signed bills that expanded the state’s gambling industry, including the expressed legality of the daily fantasy sports industry.
As a result, Michigan regulators license, regulate and tax DFS operators. The Michigan Gaming Control Board began granting temporary licenses to DFS companies in January 2020.
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What tax rate do DFS operators pay?
The state taxes DFS operators 8.4% of their adjusted gross revenues. It’s the same tax rate paid by the three retail sportsbooks in Detroit and the online sportsbooks available statewide.
During the first year of legal DFS, in 2020, operators generated $14.7 million of taxable revenue. Thus, they combined to pay more than $1.2 million in taxes to the state government.
Michigan’s biggest sportsbooks dominate DFS market too
In the US, FanDuel and DraftKings comprise most of the sports betting market. However, these two giant sportsbooks got their start as DFS operators. As big as their sports betting operation is, the two make up an even larger share of the DFS market. Nationwide, FanDuel and DraftKings combine for more than 90% of DFS action.
Not surprisingly, these two companies are also the two most-popular DFS operators in Michigan.
The two companies entered into a merger agreement in November 2016. However, it fell apart in the wake of federal anti-trust investigations into whether it constitutes a monopoly.
The investigation appeared to have some merit as there are only two other licensed DFS operators in Michigan.
The active fantasy contests that are now taxed by the state include:
- DraftKings
- FanDuel
- Fantasy Football Players Championship
- RealTime Fantasy Sports
Prior to 2019 gaming expansion, DFS debate ran wild through the legislature
Before the recent expansion that legalized sports betting and online casinos, DFS operated in a grey area. Thus, there was quite a bit of disagreemnt over its legality.
The largest operators of the DFS industry believed that DFS was legal and continued to accept customers from inside the state. Meanwhile, Michigan Gaming Control Board Executive Director Rick Kalm said in 2015 that he believed DFS is not legal at all.
This opinion came in the wake of the state Senate introducing legislation that would amend the Michigan penal code to specify that DFS is a game of skill. While this would have legalized the activity, it wasn’t necessarily an attempt to regulate DFS operators in the state. It was more of a clarification. Regardless, the bill and any efforts concerning DFS legislation died out in Michigan in subsequent years.
Another bill, which would have challenged the federal ban on sports betting, surfaced in the Michigan legislature in January 2017. The bill had a hearing before the House Regulatory Reform Committee but no vote.
Gov. Snyder vetoed 2018 bill at end of term
Previously, an effort was made to legalize DFS by amending the Michigan penal code to specify fantasy sports as a game of skill. However, the bill went nowhere and never included regulations or taxes for operators.
In 2017, Michigan lawmakers were considering online gambling legislation. Though the state’s online gambling bill failed to move in 2017, it carried over to 2018.
The bill, H 4926, would authorize several forms of online gambling, including online sports betting, should the federal sports betting ban fall. The Lawful Internet Gaming Act passed the Michigan House of Representatives 68-40.
The Michigan Senate passed the bill on Dec. 20, 2018, by a 33-5 vote, sending it back to the House for concurrence, where it passed 71-35.
However, on Dec. 31, 2018, former Gov. Rick Snyder vetoed the bill.
In the meantime, the largest DFS operators in the country continue to operate in the state.
Hall, Iden get law signed by Gov. Whitmer
Representatives Brandt Iden and Matt Hall sponsored a series of gambling expansion bills that were eventually signed in December 2019 by Whitmer, who was sworn in on Jan. 1, 2019.
Hall introduced the bill, H 4917, which allowed sports betting, on Sept. 4, 2019. It passed the House on Oct. 30, 2019 by a 65-43 vote.
The Senate passed it on Dec. 11 by a 35-3 vote, with the House approving amended changes, 98-10.
A bill that was part of the House’s original package, H 4307, was only approved by the House later on Dec. 4 because it needed a supermajority, as it contained a provision repealing a voter-approved ban from 1996 on political contributions from casino licensees and their employers.
The package legalized online gaming, online fantasy sports contests, sports betting and advance deposit wagering in horse racing.
Pick’em-style fantasy games banned by MGCB
Over the last few years, operators like PrizePicks and Underdog broke into the DFS world with a slightly new model. Instead of picking players and getting points based on their stat lines, those platforms allowed customers to earn points by picking whether or not a player would have more or less than projected stat totals.
It became known as Pick’em-style DFS. Since it was very similar to sports betting prop bets, other established operators and some regulatory bodies took issue with it.
In August 2023, the MGCB approved rules prohibiting these contests in Michigan. For example, one rule banned contests that involved selecting two or more athletes and predicting whether they would have more or less than their projected stat totals.
How popular is daily fantasy sports in Michigan?
Michigan is the 10th-most populous state in America, with more than 10 million residents. As a result, it is a rather large market for DFS.
It is estimated that DFS sites earn as much as $6.7 million annually from Michigan players. In fact, the state is responsible for almost 4 percent of all DFS contest entry fees across the US.
Estimates suggest Michigan has more than 37,000 active DFS players. Those players are responsible for almost $70 million in annual entry fees, the 10th-most of any state.
In the first two-thirds of 2020, DFS sites had adjusted revenues of nearly $7.2 million in Michigan, and the state collected more than $600,000 in taxes.