Michigan Online Sports Betting Supplier Regulatory Overview

Introduction

Sports betting was officially legalized in December of 2019. The Michigan legislature authorized the legal practice of internet sports wagering with the enactment of the Lawful Sports Betting Act¹ (“Act”). The first retail sportsbook location opened in March of 2020. Later, the first online sports betting apps launched in 2021, and since then, the Michigan Gaming Control Board (“MGCB”) has authorized fifteen online sportsbooks in Michigan to accept wagers. All licensees are subject to all applicable laws and regulations governing all gaming activity in the State of Michigan, including the Act. The following analysis summarizes the provisions of the statutes as well as the MGCB’s Sports Betting Rules (“Rules”).

Notably, the Act defines “Internet sports betting" (Sport Betting) as “operating, conducting, or offering for play sports betting through the internet.”²

Licensing

There are three overarching classifications of licenses that can be distributed in Michigan. Those include Operator Licenses, Supplier Licenses, and Vendor Licenses. The MGCB is limited by statute in issuing Operator Licenses to the three existing commercial casinos and twelve Michigan tribes. Michigan is somewhat unique, in that a platform provider does not fall under an Operator License, rather it is classified as a Supplier License.

Suppliers are those individuals or entities whose services provided to Operators directly affect the operation of sports betting.³ The licensing timeline for a Supplier License, starting from the time of the application submission to the Board approval for the license, can take seven-nine months and is a very intensive and detailed process. This range of time is an estimate, as each applicant presents a different set of facts and materials, which can require more or less time to review than anticipated and shorten or extend the timeline as such. As noted above, a Supplier License also encompasses platform provider.⁴

The last classification of license in Michigan is a Vendor License. Vendors provide goods or services directly or indirectly to an Operator, platform provider, or Supplier in connection with its Sports Betting operations in Michigan.⁵

For all classifications of licenses, the Rules provide that there are standards and criteria applicable to all applicants. The provisions listed in the Rules are not exclusive and can be supplemented by additional or different procedures upon Board request. All applicants for a Sports Betting associated license must provide to the board:

• Application
• Background investigation approval, and
• Associated fees.

Applicants and licensees are also required to establish and maintain suitability to standards of character, reputation, integrity, business probity, and financial ability.⁶ The MGCB will not issue or renew a Sports Betting license unless every person required by the Act and the rules as part of the application has first been determined by the board to be eligible and suitable in accordance with the relevant licensing standards set forth in the Act and Rules. Below is a more detailed review of the Supplier licensing and Vendor registration requirements and process.

Supplier Licensing Requirements

A Sports Betting Supplier License is required for a person or group to act as a Sports Betting Supplier and be permitted to provide goods or services to a Sports Betting Operator.⁷ “Sports Betting Supplier” includes:

• Internet Sports Betting platform providers.
• Geofence providers.
• Sports Betting data providers.
• Providers of software that directly affects sports betting or the integrity of sports betting in this state..
• Providers hosting live Sports Betting data.
• Affiliate marketers that have an agreement based on the sharing of customer revenue.
• Unless otherwise determined by the board, any other person that meets 1 or more of the following criteria:

• The person manufactures, supplies, or distributes devices, machines, equipment, items, or articles that:


• Are specifically designed for Sports Betting.


• Have the capacity to affect the outcome of an internet wager.


• Have the capacity to affect the calculation, storage, collection, or control of gross sports betting receipts.⁸


• The person services or repairs Sports Betting wagering devices, machines, equipment, items, or articles impacting the integrity of Internet Sports Betting.


• The person provides services directly related to the operation, security, surveillance, or management of Internet Sports Betting.


• The person provides other goods or services determined by the board to be so utilized in, or incidental to, the operation of a Sports Betting Operator that the person must be licensed as a Sports Betting Supplier to protect the public and enhance the credibility and integrity of Sports Betting in this state.⁹

All who service or repair Sports Betting wagering devices, that impact the integrity of Sports Betting, provides services directly related to the operation of Sports Betting, or provide other goods or services determined by the board to be associated with the operation of a Sports Betting Operator must be licensed as Supplier in order to conduct business.¹⁰

If a Supplier, platform provider, or service provider meets the criteria above, the person or entity must obtain a Supplier License. A Supplier License is valid for 5 years after the date of issuance, and it is renewable for additional 5-year periods.¹¹ Applicants are subject to an initial application fee of $5,000, and upon approval, a license fee of $5,000 to the MGCB at the time of the formal issuance.¹² Thereafter, a renewal fee of $2,500 will be due to the board each year on the anniversary of the license issuance or renewal date.¹³

Provisional Sports Betting Supplier License

Prior to the approval of a Sports Betting Supplier License, the MGCB has the authority to issue a provisional Sports Betting Supplier License to allow the applicant to conduct business before an official license is issued.¹⁴ With a provisional license, an applicant for a Supplier License can operate their business during the investigation period as they continue to work with the MGCB and provide any supplemental information needed and perform the necessary interviews required in the process. In order to apply for a provisional license approval, applicants must submit a completed application and its associated fee in addition to required disclosure forms.

The MGCB can also request and require additional documentation and materials to supplement the application. The application process includes a criminal history check of the applicant, affiliates, and key persons.¹⁵ In addition, to qualify for a provisional license, the applicant must also submit a letter of intent to provide goods or services to a licensed Sports Betting Operator.¹⁶ The timeline to obtain a provisional license generally falls within a two-to-three-month period, but the determination is discretionary, and the length of time can vary for each applicant.

Platform Providers

Platform providers are a special type of Supplier License in Michigan that is reviewed with increased scrutiny. In addition to the list of requirements that all Supplier License applicants must meet, a platform provider must obtain a written determination approving their platform for distribution after complying with MGCB lab testing requirements.¹⁷ Platform providers also are charged with working closely with their Operator partner in the development of internal controls, audit functions, and tax payment process to ensure compliance with applicable state laws and regulations.

Additionally, platform providers are required to adhere to a number of responsible gaming requirements and initiatives in Michigan as determined by the statute, rules and the MGCB.

Qualifiers

In applying for a Supplier License, a Sports Betting Supplier applicant or licensee, affiliate that has control of a Sports Betting Operator applicant or licensee, or other person that has control of a Sports Betting Operator or Sports Betting Supplier applicant or licensee must notify the board, of any such company, person or individual that has:

• Over 5% ownership (either via direct ownership or diluted ownership).
• The ability to control the company.
• The ability to elect one or more directors.

If any of the above are true, that entity or individual must submit the required information and be subjected to all appropriate financial and criminal background checks as part of the license application.

In certain circumstances, there can be exceptions to these provisions. An Institutional Investor who owns, for investment purposes, less than a 25% holding in a person or Supplier who has applied for or holds a Sports Betting Operator License or Sports Betting Supplier License may file an exemption form for exemption from the eligibility and suitability requirements of the Act.¹⁸ The following activities qualify as being for investment purposes only:

• Voting, directly or indirectly, through the delivery of a proxy furnished by the board of directors, on all matters voted on by the holders of the voting securities.
• Serving as a member of a committee of creditors or security holders formed in connection with a debt restructuring. Page 15 Courtesy of Michigan Administrative Rules
• Nominating a candidate for election or appointment to the board of directors in connection with a debt restructuring.
• Accepting appointment or election as a member of the board of directors in connection with a debt restructuring and serving in that capacity until the conclusion of the member's term.
• Making financial and other inquiries of management of the type normally made by securities analysts for information purposes and not to cause a change in its management, policies, or operations.
• Other activities that the board determines to be consistent with the investment intent.¹⁹

All Institutional Investors, regardless of holdings percentage, must notify the board of the acquiring of interest within 14 days of the transfer or of the filing of the 13-D or 13 G forms, or both. Institutional Investors are also subject to the possibility of a finding of suitability as discretionally required by the board.

Vendor Registration

Vendor registration is the least restrictive licensing process. A Vendor may need to register if it “provides goods or services, or both, directly or indirectly, to a Sports Betting Operator or Sports Betting platform provider in connection with its Michigan Sports Betting operation.”²⁰ Vendors must be registered prior to providing service or goods to a licensed Operator or Supplier.²¹ To register, a Vendor must submit a completed application for registration to the board with all disclosure forms.

Any Vendor who provides over $100,000 worth of goods or services to any Sports Betting Operator or Sports Betting platform provider must apply for a Vendor Registration License. Affiliate marketers (without revenue sharing), payment processors, data centers, and any other person or entity deemed necessary by the MGCB can qualify as needing to be a Registered Vendor.²²

An affiliated marketer has an additional certification statement related to marketing of illegal online gaming sites that is required with the vendor registration.

It is important to note that a Sports Betting Operator or a Sports Betting platform provider is prohibited from using an unregistered vendor to provide goods or services that require a vendor registration. Any entity doing so is at risk of substantial penalties in the state of Michigan.

Per rule, registration is not required for the following:

• Insurance companies.
• A person or entity that provides legal services.
• Entities providing medical related services.
• Michigan public institutions of higher education.
• Public utilities regulated by the Michigan public service commission.
• A Michigan or federally chartered depository financial institution.
• A person or business that provides goods or services as a result of the licensee’s employees engaging in business travel, including transportation, lodging, food, and fuel providers.
• A person who provides employee training or professional development to a licensee.
• A person who provides conferences, seminars, publications, or memberships that will directly contribute to the work performance or professional development of the licensee’s employees.²³

During the application process, criminal records, suspension of licenses, business reputation, associations, and compliance with gaming laws, among others, are items considered during the investigation period. Vendor registrants and applicants must always conduct themselves in the manner that does not compromise the integrity of Sports Betting.²⁴

To register, Vendors must file a completed application and required disclosure forms to the MGCB.²⁵ Registration is valid for 5 years and applicants must submit an application fee of $200.²⁶

Sports Betting - General Resources

As the Sports Betting market is maturing in Michigan, other resources are available for your review. Below are several sources of reputable information:

• For those interested in learning more about licensing requirements, responsible gaming, or other Michigan gaming resources, visit the MGCB website at www.michigan.gov/mgcb.
• If you are seeking additional seeking guidance or counsel for licensing requirements, please visit www.michigangaming.com.
• For current game certification services offered by GLI, please visit gaminglabs.com.
• Michigan responsible gaming resources are available at www.michigan.gov/mgcb/resources/responsible-gaming.

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¹Lawful Sports Betting Act (MCL 432.401 - 432.419) created by Public Act 149 of 2019 (Enrolled House Bill 4916) on December 20, 2019
²MCL 432.403 Sec. 3 (s)
³MCL 432.403 Sec. 3 (ee)
⁴MCL 432.403 Sec. 3 (v)
⁵R 432.729 (1)
⁶R 432.725b(2)(a)
⁷MCL 432.408 Sec. 8 (1)
⁸R 432.722 (3)(g)(i)
⁹R 432.722 (3)
¹⁰R 432.722 (3)(f)
¹¹MCL 432.408 Sec. 8 (3)
¹²MCL 432.408 Sec. 8 (6)
¹³MCL 432.408 Sec. 8 (8)
¹⁴MCL 432.408 Sec. 8 (2)
¹⁵R 432.725 (1)(a-d)
¹⁶Id.
¹⁷R 432.732a
¹⁸R 432.721e (2)
¹⁹R 432.721e (5)
²⁰R 432.729 (1)
²¹Id.
²²R 432.729
²³R 432.729 (1)(d)
²⁴R 432.729 (3)(a)
²⁵R 432.729 (1)(e)
²⁶R 432.729 (1-2)