Illinois Is Poised To Become The Gambling Capital Of The MidwestBy Jason Grotto, ProPublica Illinois, Dan Mihalopoulos, WBEZ
Illinois Is Poised To Become The Gambling Capital Of The MidwestBy Jason Grotto, ProPublica Illinois, Dan Mihalopoulos, WBEZ
An 816-page bill introduced and passed by the General Assembly over the weekend will, if fully realized, transform Illinois into the gambling capital of the Midwest.
The legislation legalizes sports gambling; sanctions six new casinos, including one in Chicago; increases the number of video gambling machines as well as the maximum bet; and transforms the state’s horse racing tracks into “racinos” by permitting casino operations at the state’s three existing tracks while allowing two more to open.
The number of state-sponsored gambling “positions” — seats to place a bet inside a casino, bar or racino — will grow from almost 44,000 to nearly 80,000. That’s about four times the number of positions in any neighboring state, according to a review of gambling statistics by ProPublica Illinois and WBEZ.
Within two years, Illinois could have more than 7,000 video gambling establishments, 5,000 lotterylike sports betting kiosk locations, 16 casinos, five racinos and online sports gambling accessible on millions of mobile phones. The bill even allows video slot and poker machines at Chicago’s airports, O’Hare and Midway.
Illinois has the lowest credit rating in the country, and a recent report by Moody’s Investors Service found it is one of two states deemed ill-prepared to weather another recession. The other is New Jersey. Lawmakers are wagering that the massive gambling expansion will help pull the state out of its financial crisis while making significant contributions to a $45 billion building campaign called Rebuild Illinois, the state’s first capital plan in a decade.
It will take years to determine if this historic bet pays off. But if past outcomes offer any hint, the results are likely to fall far short of what lawmakers are promising.
In 2009, during the depths of the Great Recession, the Illinois legislature made a similar gamble: In less than 48 hours, lawmakers introduced and passed the Video Gaming Act, the state’s largest gambling expansion since the creation of the lottery in 1974. Legislators said video gambling would generate $300 million a year to fund another building program, this one called Illinois Jobs Now! Within months, the state began borrowing hundreds of millions of dollars, eventually racking up more than $10 billion in new debt.
A ProPublica Illinois-WBEZ investigation in January revealed that it took nearly a decade for video gambling to reach revenue projections, exacerbating the state’s financial woes in the process. Lawmakers also skimped on funding for regulatory and social costs. Meanwhile, a handful of video gambling operators reaped massive profits, in part because the state has one of the lowest tax rates on video gambling in the country.
“The rapid expansion of sports gambling and casinos without any public vetting of what the capacity or the impact of the expansion will be is quite disappointing and may end up having the same sort of negative consequences that earlier gambling expansions did,” said Laurence Msall, president of the nonpartisan Civic Federation, a government watchdog group.
In the latest gambling expansion bill, which cleared its last legislative hurdle Sunday and is expected to be signed by Gov. J.B. Pritzker in the coming weeks, the General Assembly addressed some of the issues exposed in “The Bad Bet” investigation.
The Bad Bet: A multi-part investigation examining the legalization of video gambling in Illinois.
Read Part 1: How Illinois Bet On Video Gambling And Lost
Read Part 2: Illinois Allowed Video Gambling And Left Addicts With A Losing Hand
Despite an industry lobbying campaign to block a tax increase on video gambling machines, lawmakers raised the tax by 3% starting July 1, with an additional 1% kicking in a year later. The rate is currently 30%, with 25% going to the state and 5% to local governments. The tax increase will move Illinois’ tax rate on video gambling above Louisiana. But Oregon, Pennsylvania, South Dakota and West Virginia all have rates at 50% or higher.
After a ProPublica Illinois-WBEZ story last week revealed that several powerful lawmakers and their family members had financial ties to the video gambling industry, most abstained from voting on the gambling expansion bill over the weekend.
Before the Senate vote late Sunday afternoon, Minority Leader Bill Brady, a Republican from Bloomington, informed his colleagues that he had a conflict of interest and would not vote on the bill. He also said he had recused himself from the closed-door negotiations that produced the legislation. Also abstaining from the vote was Sen. Thomas Cullerton, a Democrat from Villa Park who is a sales agent for a video gambling operator.
But Sen. Antonio Muñoz, a Chicago Democrat and the assistant majority leader, presided over the session and voted to approve the expansion bill even though his son is a sales agent for a video gambling operator run by former Democratic Sen. Michael Bond.
The elder Muñoz responded with a statement that did not directly address his involvement in the vote.
“I’m proud of my son,” Muñoz said. “He’s a 31-year-old disabled Marine combat veteran who served in Afghanistan as a rifleman and struggles with PTSD as a result.”
When lawmakers passed the Video Gaming Act in 2009, they dramatically expanded the workload of the Illinois Gaming Board without providing additional resources to implement the law, ProPublica Illinois and WBEZ found. This time, the legislature gave the gaming board an $8 million budget increase, plus as much as $20 million in additional funding to handle its growing portfolio, which now includes sports gambling, six new casinos and racinos.
Lawmakers also made the board less transparent. Tucked inside the sprawling bill is a paragraph that gives the gaming board broad authority to close its meetings under the Open Meetings Act. Judges in two recent lawsuits found the board violated the Open Meetings Act by going into closed session improperly. ProPublica Illinois has filed a lawsuit after being denied recordings of one of those meetings. That lawsuit is pending.
Lawmakers also dramatically increased the amount of money set aside to fight gambling addiction. This year, ProPublica Illinois and WBEZ found that the state ranks toward the bottom in funding for addiction services — 28th out of 40 states. Unlike a number of other states with legalized gambling, Illinois has never measured the prevalence of gambling addiction, what experts consider a crucial first step in fighting what the American Psychiatric Association now recognizes as a disease similar to drug and alcohol addiction.
Under the new budget, which also passed over the weekend, the General Assembly increased the funding for gambling addiction from about $800,000 a year to $6.8 million, an 8 ½-fold increase.
The gambling expansion bill also calls for a self-exclusion program for sports betting, which will allow problem gamblers to bar themselves from placing bets on games. The state has a similar program in place for casinos. But it still lacks a self-exclusion list for the nearly 7,000 video gambling locations, which legislators could have added to the expansion bill but did not.
While addiction counselors welcome the budget increase, they say they are wary of the massive gambling expansion that will accompany it. Studies show that as the number of gambling opportunities increases, so does the rate of addiction. And if all the gambling options in the expansion come to fruition, the amount and variety of gambling in Illinois will be unprecedented.
“It’s a significant increase in funding,” said Anita Pindiur, executive director of the Way Back Inn, a Maywood treatment center that helps about 80 people a year with gambling problems. “But this is a massive expansion, and it’s not rolling out slowly. It’ll happen very fast. And that’s going to have an impact on people. We have to educate them on the signs of addiction, or they won’t know when there is a problem until it’s too late.”
In a statement released after the House passed the bill Saturday, Pritzker hailed the vote as the fulfillment of a key element of his legislative agenda, one he says will create jobs, make Illinois more competitive with neighboring states and bring much-needed revenue to struggling local governments.
“Today is a win for our whole state,” he said.
Yet even before lawmakers approved an estimated 23,000 new gambling positions, ProPublica Illinois and WBEZ had found that video gambling has cannibalized casino revenue. Between 2013 and 2017, state revenue from casinos in Illinois declined 15%, from $462 million to $393 million, as income from video gambling machines grew nearly 900%, from $30 million to $300 million, state records show.
The expansion bill increases the maximum number of gambling positions at casinos to 2,000. But only two of the state’s 10 existing casinos have hit the current limit of 1,200 positions, raising questions about whether the state has reached a saturation point. Three have fewer than 1,000 positions.
That’s one reason the Illinois Casino Gaming Association opposed the expansion bill. While lawmakers approved a measure that will allow the state’s 10 riverboat casinos to relocate to land in hopes they will pump millions of dollars into new brick-and-mortar facilities, a representative from Penn National, which owns three casinos in the state, said it was unlikely the company would do so.
“This is a bill that will grow the number of gambling positions, but it’s not going to increase the number of gamblers,” said Tom Swoik, the executive director of the Illinois Casino Gaming Association. “This state has not been business-friendly to the casinos from the beginning, and this bill doesn’t help that.”
Illinois was one of only four states that saw a decline in consumer spending at casinos between 2016 and 2017, according to a recent report by the American Gaming Association.
Yet the General Assembly, Pritzker and newly elected Chicago Mayor Lori Lightfoot are banking on a 4,000-position mega casino in downtown Chicago to help bail the city out of its crushing pension debts, which are estimated to go up more than $1 billion to $2 billion by 2023.
While a Chicago casino will certainly draw tourists, it will compete for local players with tens of thousands of video slot and poker machines located just outside the city’s borders.
“This revenue will not be available in time to significantly address the city of Chicago’s current funding challenge nor it’s impending $1 billion increase in pension funding,” Msall said.
What’s more, research shows that gambling revenues are closely tied to the broader economy. In recent years, Illinois has seen a healthy increase in revenue from gambling. But that has come amid one of the largest economic expansions in U.S. history — and while thousands of video gambling machines have been added across the state.
During the 2008 financial crisis, before the state had video gambling machines, casinos saw steep declines in revenue. That’s why experts caution state and local governments about relying on gambling revenues to fund borrowing or cover recurring expenses, such as pension payments.
Chicago isn’t the only city hoping a casino will bail it out. A string of struggling areas across the state are banking on casinos after the legislation added licenses for Waukegan, Rockford, Danville, Williamson County and the south suburbs of Chicago.
Yet many of those areas are already inundated with video gambling machines. By the end of April, Waukegan had 54 establishments with 262 video slot and poker machines peppered throughout the city. Adding a 2,000-position casino to the town will increase the number of gambling positions nearly eightfold.
Rockford pulled out all the stops to land a casino, even getting Cheap Trick’s Rick Nielsen to push for a license. Yet the city already has 100 establishments with 477 video gambling machines. That’s on top of the 87 locations and 423 video gambling machines in surrounding towns like Loves Park, Cherry Valley, Edgewood and Machesney Park.
And under the expansion, bars, restaurants, fraternal organizations and gambling parlors will be allowed to have six machines, up from five. Trucks stops will be permitted to hold 10 machines. The bill also allows the maximum bet to increase from $2 to $4, and for individual locations to create jackpots up to $10,000, changes that will make video gambling locations even more competitive with casinos.
It’s also possible that new casinos will drain revenue from local bars and restaurants that have begun to count on video gambling proceeds. Rockford, for example, has the second-highest number of video slot and poker machines in the state, and the draw of a new casino could drain gambling dollars from locations there.
“I think people from Rockford are underestimating the impact this is going to have on small bars and restaurants there,” Swoik said. “There’s likely to be a shift from the [video gaming terminals] to the casino.”
Also in the mix are an untold number of sweepstakes machines, devices similar to video slot and poker machines that have been proliferating in Chicago. The sweepstakes devices were essentially legalized in 2013, when some of the same lawmakers who shepherded the state’s latest bet on gambling expansion pushed legislation through the General Assembly to decriminalize them.
Jason Grotto is a reporter at ProPublica Illinois. Follow him on Twitter at @jasongrotto. Dan Mihalopoulos is an investigative reporter at WBEZ. Follow him on Twitter at @dmihalopoulos.