For many years, I’ve wondered why casino operators get involved in Illinois. Yes, I understand it’s a big state with a big population and the potential for its market was always huge. It was one of the first states to legalize riverboat gaming in 1990 with a limited amount of properties. Even for that time, the tax rate was high. But a few years later, it was raised to 70 percent, and when that proved to be untenable, it was lowered to 50 percent for casinos achieving GGR of over $200 million annually.
And then, adding insult to injury, Illinois legalized video gaming in bars and restaurants, heaping even more competition on existing casinos. In 2019, Illinois expanded gaming yet again, allowing six casinos in and around Chicago, where gaming had previously been prohibited.
Also in 2019, sports betting was legalized in Illinois with a high, but reasonable tax rate of 15 percent. But again, Illinois stumbled by requiring in-person registration for the first couple of years. While that was done to appease the casino operators at that time, it came back to bite them when the pandemic hit and in person registration was not possible.
The one constant about Illinois gaming is nothing ever stays the same, so planning for the future for any casino operator or sports betting provider in the state is impossible.
The jewel of the newly legalized casinos should be Chicago. The don’t call it the “Second City” for no reason, with its great entertainment, vibrant culture and sports teams always in the mix. But as usual, Illinois just about killed the golden goose by approving five casinos in Chicago suburbs meaning that the Chicago casino would only draw primarily from Chicago residents, not from the affluent suburban markets. And to make matters worse, the proposed Chicago casino would carry a tax rate of over 70 percent. When casino operators understandably balked, it was back to the drawing board and a revised tax rate of 40 percent. But that was still too high for the major operators like Caesars, MGM Resorts, Wynn Resorts and Las Vegas Sands, especially when you consider the lack of a suburban market.
Chicago was lucky to get great proposals from three companies, Rush Street Gaming, Bally’s and Hard Rock. The proposals are well-thought out and creative, but again, Chicago seems to have shot itself in the foot. The city is in the process of approving sports books at five stadiums and arenas in the city, effectively creating five mini-casinos just at the moment it is asking these three applicants to invest billions of dollars in properties where it will be difficult to create a return on investment.
Anyone who doubts that these sports books will be major betting centers need only to view the proposed DraftKings sports book outside of historic Wrigley Field where the Chicago Cubs play during the summer. But of course, these sports books wouldn’t just be limited to when the Cubs are playing home games, they will operate 24/7 and become serious competitors to a Chicago casino. Realize that DraftKings is prepared to invest more than $100 million in this project, and you can see they expect a hefty return on investment. And Chicago even made it worse by imposing a 2 percent tax over and above the 15 percent the state takes and 2 percent that Cook County takes. That’s a total of 19 percent tax on sports betting revenue, which is higher than most states across the country.
Neil Bluhm, the chairman of Rush Street Gaming, points out that by allowing sports books outside the casino, Chicago will be losing taxable casino revenues in the millions of dollars per year. A 2 percent take on sports betting will result in less than a million dollars a year for Chicago, but because the stadium books will open more than two years before the casino, they will sap a possible market and cost the city revenue rather than increasing it.
The winner of the Chicago casino license will also be permitted to run slot machines at the Chicago-area airports, Midway and O’Hare. That was a bone thrown to the Chicago casino in the legislation. Why not allow the winner of the bidding process to run the sports books at the stadiums and arenas as well? Chicago would still get the revenue and the Chicago casino operator will make a visit to any sports book synergistic with a full casino experience branded to that company. That would make sense. But in Illinois, anything that makes sense for gaming rarely makes sense for government. Let’s hope that there are some rational people making these decisions and Chicago will truly benefit from gaming.
