Soon after the Illinois legislature approved a massive gaming expansion bill, including an urban casino in Chicago, city government commissioned a study from Union Gaming Group to determine the best and most profitable outcome. The result? Unless taxes and fees are lowered, a Chicago casino would barely scrape by and wouldn’t attract serious bids from the major gaming companies.
In addition the report says the sites being considered would not draw enough tourists because they are located away from major tourist attractions and are unsafe or inconvenient.
With taxes and fees for a Chicago casino under the current legislation top off at 72 percent and operating costs around 30 percent, the report says even the most efficient—and lucky—casino would have profits in the single digits. Union Gaming says at best in any of the five locations suggested EBIDTA would only amount to $21.7 million. And when you add a $15 million license reconciliation fee, profits are impossible, said Union Gaming.
“The reconciliation fee alone would wipe out any profits generated for many years, if not decades,” the study said. “The return on investment profile for all five sites is subpar, if not negative over the five years projected.”
There were other reasons why the preferred locations were the big impediment, according to the report.
“Tourists generally will not patronize a casino in an area that is inconvenient relative to where they are staying or perceived as unsafe, nor will tourists be eager to book a room at a casino’s hotel if there are no other easily accessed attractions nearby,” the report noted. “For these reasons and more we would not expect a material number of tourists to patronize any of the five sites analyzed herein. Instead, these sites will primarily draw patrons from persons living within close proximity.”
The report recommended that the casino be “centrally located to high-quality hotels and other notable tourist attractions” in order to “meaningfully penetrate the robust tourism trends” of Chicago.
But tourism and convention officials are hesitant to site the casino downtown near the city’s massive convention building, the McCormick Center, for fear of losing convention attendees to the casino floor.
The Illinois Gaming Board has 90 days to ask the legislature to reconsider the terms of the bill for the Chicago casino.
Mayor Lori Lightfoot says now the state can reconsider the terms of a Chicago casinos.
“We have been clear from Day One that the creation of a new casino for Chicago has to be financially viable and address the revenue needs of the city of Chicago,” she said in a statement. “While the study confirms our concerns about the tax structure that the legislature passed, we know that this can be addressed, and we look forward to working with the governor and legislative leaders to revise the legislation.”
The report didn’t reject the notion of the city owning the casino and leasing to an operator-manager. This idea was shot down during the initial negotiations because of ongoing corruption scandals on city council. Lightfoot said she’s like it to be reconsidered.
“Obviously, that was something that we asked for,” the mayor said. “But I think we’re going work within the construct that we have just to make sure that we get the tax structure right.”
A successful Chicago casino, however, would return almost $260 million in revenue that now goes to Indiana casinos, where Caesars, Boyd, and Spectacle Entertainment now operate.
The report also stresses a long timeline for a Chicago casino. Assuming a license is issued in 2020, “which would then be followed by a two-year construction cycle with the casino opening on or about January 1, 2023. Given the illustrative one-year ramp period, we would largely expect 2024 to represent stabilized revenue and cash flow.” The goal of bringing more tax revenues for Chicago wouldn’t be reached until at least 2023.
That timeline was disputed by several of the major players, including Rep. Bob Rita, who would like to see a casino opened by late 2020.
“We need some time to analyze this, but the process is playing out a lot like we anticipated,” Rita said.
The bill also permits slots at Midway and O’Hare airports, which the report says would perform better than the slots in Nevada airports. With 500 machines at the airports, winning $200 a day, revenues could reach $37 million.
The South Side of Chicago isn’t a great location either, says the report. Proximity to a newly approved casino in southern Cook County, a new racino nearby and existing casinos in Aurora and Joliet make the South Side a saturated market.
In a survey of Chicago residents, about one-third of the 10,000 respondents wanted a casino downtown and a little less than one-third preferred an area that needed redevelopment.
