Chicago is the third most populous metropolis in the U.S., a center of arts and culture, a crossroads city visited by more than 57 million tourists in 2018. What it doesn’t have is a casino, and Mayor Lori Lightfoot is out to change that—not only to boost tourism, but to fund an almost-bankrupt city pension fund.
In April, Lightfoot put out a request for proposals, touting Chicago as a “once-in-a-lifetime opportunity” for some lucky casino operator. But the silence was deafening, chiefly due to the gaming tax rate. The rate was whittled from an eye-watering 72 percent to 40 percent, but it’s staggering compared to, say, Nevada, where the rate is a mere 6.75 percent.
Vegas operators passed on Chicago, but at the end of October, Rush Street Gaming, Bally’s Corp. and Hard Rock International responded with a total of five proposals.
Can they make it work given the tax rate and surrounding competition? GGB News asked Frank Fantini, CEO of Fantini Research and publisher of Fantini’s Gaming Report.
‘Where Do You Invest?’
“If you got into a time machine, went back three years ago and said they could operate under a reasonable tax rate, you would have seen Wynn, Las Vegas Sands and Caesars competing with each other to have the only casino in the third largest metropolitan area in the country—a continental intersection and international destination,” Fantini said. “But when you can operate elsewhere at tax rates of 25 percent and lower, that’s an issue of, where do you invest?”
For example, an operator who invests $1 billion in a property and needs a 25 percent return would have to generate $250 million in EBITDA, Fantini said.
“That’s a lot easier to do if $250 million is going out in gaming taxes. instead of $400 million,” he said.
And though it’s possible to make a profit at that rate, for many operators it wasn’t be enough to justify the investment.
The ‘Destination’ Model
Besides the tax rate, another drawback may be “the dynamics of the market,” Fantini said.
“Las Vegas is a destination. Atlantic City is a destination, at least in the summer. You can say the Mississippi Gulf Coast is a destination. But Chicago is not a destination, because it’s surrounded by other casinos” in both Illinois and Indiana. And more are in the planning stages.
That said, Fantini doesn’t believe the market is saturated.
“You have 2.5 million people in the city,” he explains. “There’s plenty of opportunity for a profitable casino in Chicago, but developers aren’t going to invest the money it takes to build what Lightfoot says she wants: an internationally renowned destination property. It’s going to be a local casino, with locals who patronize it.”
Then there are the politics of the state, which has never been supportive of the gaming industry.
“If you look at Illinois, you have two different worlds,” Fantini said. “Drive south of Chicago, where the Prairie State begins, Chicagoland is a big raw, politically feisty city where generating high taxes is a strong motivation. Immediately south, you have culturally conservative farmland, whose residents aren’t friendly towards casinos and don’t care if they overtax them. Illinois, from a casino point of view, is dysfunctional.”
Bally’s Corp. has submitted two proposals: a $1.8 billion property in the Chicago Tribune Publishing Center and a $1.6 billion property at McCormick Place.
Local player Rush Street 1/Rivers Chicago has also filed two bids: a $1.3 billion property at Lakeside Center at McCormick Place, and a $2 billion property in the eight-acre riverfront entertainment district at the northern end of the neighborhood known as The 78.
Hard Rock/HR Chicago LLC proposes a $1.7 billion property at ONE Central.
“Bally is saying, ‘This will be our flagship,’” said Fantini. “That’s a pretty good appeal. Looking at it from a distance, I’d say to Bally’s, ‘That’s a great proposal, but what’s your track record? You have relatively small casino properties in Rhode Island and elsewhere: show us that you can do this.’
“Then you have Hard Rock, which is a whole different animal, because they have the Hard Rock brand, the ability to draw from an audience that’s there to spend money on things other than gambling—the whole music thing.”
Hard Rock has a track record, said Fantini. “Two of the most successful casinos in the U.S. are Hard Rock casinos near Miami and Tampa. Nobody knows how successful, because the Seminoles (who own Hard Rock International) don’t release financials, but certainly their buildings are spectacular. So, again, if you’re on the selection committee, you look at Hard Rock and they have the history.
“But if I’m looking politically, who they are going to select? Hard Rock might have a conflict,” because it has a Northern Indiana property, Hard Rock in Gary, which opened in May and it located just 30 miles away. They also just opened a temporary casino in Rockford, Illinois, northeast of Chicago.
Bally, on the other hand, could “market Illinois to Indiana,” sending Chicago customers to Bally’s Evansville, some 300 miles away, and vice versa.
Then there’s Neil Bluhm and Chicago-based Rush Street Gaming, which owns Illinois’s most profitable casino, Rivers Casino in Des Plaines.
Bluhm “is a hometown boy,” Fantini observed, “and he can make a good case that he can develop a more profitable casino for the city by virtue of having an existing base and properties that can complement each other, rather than compete. He’s gone into partnership with a legendary real estate developer (Scott Goodman of Farpoint Development), and he knows the area.”
Now it’s a horse race. Ultimately, the decision will be made by the Illinois Gaming Board, with major input from city departments and Lightfoot.
And though the big Vegas names were no-shows, the existing proposals “truly value Chicago assets,” said Deputy Mayor Samir Mayekar, and represent “well over $1 billion worth of development,” with taxes that can help pay those pensions. “We are very encouraged by what we’ve seen with these five bids.”
Details of the proposals will be disclosed at public presentations on Thursday, December 16; the presentations will be live-streamed. An operator will be chosen in early 2022, and a Windy City casino is likely to open in 2025.