Observers question expanded gambling in Illinois
Questions surrounding a gambling bill that is headed to Illinois Gov. Pat Quinn’s desk have focused on regulation and on how much new casinos could raise for state coffers.
But casino industry watchers also are asking whether the gambling market will be oversaturated with five new riverboats, mini-casinos at the state’s five horse racing tracks and slot machines at Chicago’s airports. Increased competition from neighboring states, an unpredictable economy and casino bankruptcies are raising distress signals for the industry around the country.
The Illinois bill includes the nation’s first city-owned casino. It would be in Chicago, and be overseen by a board chosen by the mayor and approved by the Illinois Gaming Board. Chicago Mayor Rahm Emanuel has been cranking up the pressure on Quinn to sign the bill. The mayor already has released a wish list of infrastructure projects he hopes to pay for with casino profits.
The Chicago-Northwest Indiana market ranks No. 3 in the nation in top casino earnings, behind Las Vegas and Atlantic City, according to the American Gaming Association. Every state but two, Hawaii and Utah, has some form of legal gambling, industry observers point out, raising questions about whether further expansion can be profitable.
Supporters say the appetite for gambling remains robust. They point to the July opening of Rivers Casino in Des Plaines, the state’s newest casino, as proof. Traffic jammed the Tri-State Tollway, the casino parking lot reached maximum capacity and patrons waited in long lines to get inside.
State Senate President John Cullerton, a Democrat from Chicago, said he was approached recently by a lobbyist hired by a Wisconsin casino who hoped to stifle competition by derailing Illinois’s expansion of gambling sites. The fact that neighboring states are worried suggests there is a market for more, Cullerton said.
Supporters also argue that a casino in tourist-rich Chicago would keep gamblers here instead of sending them across state lines. Dozens of buses depart from Chicago and the suburbs every day for gambling destinations elsewhere. Emanuel has said Illinois should not allow Indiana to get “$20 million a month while our infrastructure is crumbling."
Even if Quinn signs the gambling bill without changes, finding investors could be difficult. Investors in the Des Plaines Rivers Casino spent $450 million on licenses, fees and infrastructure before the doors even opened. And the state has one of the highest tax rates in the country, at 50 percent of adjusted gross receipts for the most profitable casinos.
“It’s a difficult economy to find any kind of capital,” said Ed Feigenbaum, publisher of Indiana Gaming Insight, a nonpartisan newsletter that tracks the industry. “In the boon days, anybody who had a gaming license could find cheap money. They also thought riverboats were immune to economic downturns. We found out that was not the case.”
Casinos nationwide have suffered from the recession, including those on Las Vegas’s famous strip. Dozens have filed for Chapter 11 bankruptcy reorganization, teetered on bankruptcy, scaled back on property improvements or laid off employees.
In Indiana, five of the state’s 13 gambling properties filed for bankruptcy reorganization in recent years. One company, Casino Aztar, emerged from bankruptcy with a new owner, Tropicana Entertainment. But four others — Majestic Star I and II in Gary, Hoosier Park Racing and Casino in Indianapolis, and Indiana Live in Shelbyville — remain tangled in court proceedings.
Still, for local and state governments, the lure can be strong. Illinois casinos earned $1.4 billion in adjusted gross receipts in 2010, sending $384 million to the state treasury. An additional $83 million went to host towns. Rivers Casino in Des Plaines took in $18 million in adjusted gross receipts during its first two weeks of operation, according to the latest numbers from the Illinois Gaming Board. The totals put the casino on target for its projected $325 to $400 in annual revenue.
Tom Swoik, executive director of the Illinois Casino and Gaming Association, which opposed the expansion bill, said adjusted gross receipts — profits minus winnings paid out to gamblers — paint a skewed portrait of casinos’s profits because the numbers do not include overhead costs.
“The bottom line is that the state makes two to three times more from taxes than the casinos,” he said. “On top of that, they’re paying salaries, fringe benefits and the other costs of operating that casino, everything from poker chips to toilet paper to garbage pickup. It’s difficult to try to convince some of the larger companies to come to Illinois and open up these properties.”
Illinois casinos reported their highest numbers in 2007, with $2 billion in adjusted gross receipts. Part of the drop-off since then hit in 2008 when Illinois banned indoor smoking statewide. Indiana, Michigan and Iowa allow smoking at many of their casino properties.
Riverboat casinos first opened in Illinois in 1991, reporting $15 million in adjusted gross receipts that year. Since then, the state has debated, but not enacted, numerous gambling bills. Lawmakers gradually changed the law to allow the floating vessels to become land based, and that has made them more profitable, with patrons able to come and go more easily.
In 2009, desperate for money to recharge the construction industry and put people to work, lawmakers legalized video poker as a way to pay off construction bonds. They followed that action this year with a proposed Chicago-owned casino, more riverboats and slots at racetracks.
A longtime gambling researcher, John Kindt, professor of business and legal policy at the University of Illinois, met with Quinn last week along with other gambling opponents to urge him to veto the bill. Gambling, Kindt said, is not the pot of gold supporters often suggest it is. For example, he said, money pumped into slot machines and other forms of gambling is lost to the overall economy.
“There are thousands of pages of research showing market saturation and how the gambling economy is cannibalizing the consumer economy,” he said. “As Governor Quinn has said himself, you can’t gamble your way to prosperity.”
As consolidation and bankruptcy weighs on the industry, casino giants are looking overseas for growth opportunities. Macau in China now surpasses Las Vegas as the world’s top gambling destination. Las Vegas gambling giants, including MGM Grand, the Las Vegas Sands Corporation and the billionaire casino magnate Steve Wynn, are turning there for expansion, not necessarily to cities like Rockford or Danville, both of which would receive casinos under the Illinois bill.
As the governor considers his options, Senate President Cullerton is working on a follow-up bill to address Quinn’s concerns that the original measure lacks proper regulation. They also have discussed revising the 2009 video gambling law as part of a compromise package.
Quinn said he would act promptly when the legislation arrives on his desk. But he has not said precisely what that action will be.