In June, the Illinois legislature passed Senate Bill 690; Governor J. B. Pritzker signed it June 28th. The good news is a casino expansion bill finally passed in Illinois, but the bad news is the bill was pushed through at the last moment and has some fundamental flaws. The bill allows for six new casinos, additional gaming positions for existing casinos, more VLTs at each authorized location, slot machines in Chicago’s airports and racetracks and sports betting. It also contains the fees and taxes to be levied in each category. The new law mandates a feasibility study on the new casinos, particularly for the one casino authorized for the city of Chicago.
In July, Las Vegas-based Union Gaming Analytics was selected, as no other company submitted a proposal before the stated deadline. Union Gaming took a month to do its study and the results were made public on August 13th. Union Gaming’s opinion was not optimistic concerning the best location, expected revenue and viability of a casino in Chicago. In summary, Union Gaming said: “Not feasible due to the onerous tax and fee structure.”
Immediately, Chicago Mayor Lori Lightfoot and Governor Pritzker called press conferences to express their concerns. Both called for legislative action to make adjustments to the tax and fee structure. The legislature has 90 days to amend the bill which will not be an easy fix because the taxes and fees were part of the compromises to move the bill forward. Illinois has a long history of debating gaming expansion, but this is the first legislation that included adding casinos that made through the process. Each of the compromises was important in keeping this year’s bill alive. It is the way of bill-making. One might ask why did anyone think a bill that imposed an effective tax rate of 72 percent was a good idea? Of course, the lawmakers were not thinking about the effective tax rate or the total costs to would-be operators.
A friend asked me why the legislature could not have authorized a feasibility study before approving the bill. The answer is simple; it is not the way things are done and it would have delayed the bill, effectively killing it. Lawmakers don’t think about profit for a business, they think about money to fund a budget. And coincidentally the budget often includes projects that will help them be reelected or help solve some other short-term problem.
Before the feasibility study could begin, potential sites needed to be identified. Mayor Lightfoot took a few days to identify five sites for the proposed casino. She chose sites that she and her party felt needed development but Union Gaming found to be less than optimal. It suggested a more central location would draw more tourists and be much better than the mayor’s choices. Lightfoot has said that those sites were just place markers and she was willing to consider other locations. But again, politicians not casino professionals will make the recommendations.
In no other industry is site selection delegated to politicians and bureaucrats. Twenty years ago, it was said that McDonalds spent $50,000 on choosing the best site for the next outlet. The process was sophisticated, time consuming, expensive and meticulous. There was and is a very good reason for that careful process. Location can be the most important factor in determining the success or failure of a business. It is a business problem, not a political one. But in Chicago the entire process has been political.
Union Gaming said a casino in Chicago was not viable and no reputable and experienced gaming operator would be interested under the conditions imposed by the legislation. If a potential casino operator should step forward, they would not be able to find financing for the project. The city of Chicago and the state of Illinois have to go back to the legislature and to try a compromise. If they are successful it will still be a political solution to a business problem. There is no guarantee that such a solution will result in a viable casino opportunity in Chicago.
The report did have one bit of hope for Chicago. It suggested that slots at the airports is viable and will generate a fair amount of free cash for the city. That may be the real message in the Union Gaming report and the expansion of gaming in Illinois. Slot machines put into existing locations are viable. If the taxes and fees are reasonable, adding slot machines can be accomplished almost painlessly. It does not require large investments or financing and the licensing can be faster and easier. In 2009, the Video Gaming Act passed authorizing VLTs in non-casino locations. It took a while to get started, but today there are 32,000 VLTs operating in 7000 separate locations in Illinois. In July the VLTs generated $134.3 million, up 11.1 percent from July of 2018; casino revenue for July fell 3 percent from the previous year to $115.7 million. That has been the trend in Illinois for the last few years, more VLTs, more VLT revenue and less revenue for casinos.
Regardless of how the issue of a casino in Chicago is resolved, one thing is clear. If you would like to make money from gambling in Illinois, building an expensive casino and paying a very high tax rate is not the best way. A casino is not the best option for casino operators or for government treasuries. The ideal option is to have a string of slot machines in bars, fraternal clubs, truck stops and airports. Slot machines are not as sexy as a billion-dollar casino sitting within the reflective surface of the Bean in Millennium Park, but they are simpler, cheaper and guaranteed not to fail.
