The two companies that own Dotty’s Cafe, Stella’s Place and Shelby’s gambling parlor chains in Illinois recently filed a lawsuit in Cook County Circuit Court claiming the state’s Video Gambling Act “places a disincentive on local establishments to improve their consumers’ video gaming experience” because it requires video gambling parlor owners to evenly split their profits with the companies that operate the terminals, rather than reinvest in their businesses.
Laredo Hospitality Ventures and Illinois Cafe & Services Company own and operate a total of more than 100 Illinois video gambling parlors in 21 counties, with about 500 employees. Each location requires an initial investment of $200,000.
The lawsuit states, “The amount in profits the Video Gaming Act divvies out to each party is not rationally related to the contributions or investments each party may make toward the business or the amount each party has at risk.” It says gambling parlors and the terminal operators should be allowed to negotiate their own profit-sharing deals, and the retail establishments–including bars and restaurants—also should be permitted to buy, install and maintain their own machines. The suit says those provisions of the law are “unconstitutional under the due process and equal protection clauses” of the Illinois and U.S. constitutions.
Attorneys representing the plaintiffs said under the current law the state loses essential tax revenues. Net video gambling revenues are taxed at a flat rate of 30 percent, with 25 percent going to the state and the other 5 percent going to the local municipality. The remaining 70 percent of revenue is divided evenly between the establishments and the terminal operators.
The attorneys added if the parlors were not required to share such a large percentage of their profits with the terminal operators, the establishments could upgrade current operations, hire staff, expand or promote their businesses. Those actions could lead to additional revenues and more taxes to the state, they said. Right now the average video gambling establishment loses about $25,000 in annual profits. Giving more than half of the profits to terminal operators “represents an unconstitutional and irrational transfer of wealth” that violates the gambling establishments’ rights because it “favors terminal operators and serves no legitimate state interest,” the suit says. “I can think of no other industry where, by law, a business is forced to give up 50 percent of their profits and is strictly prohibited from even trying to negotiate better terms,” a lawyer for the plaintiffs said.
The lawsuit also states a terminal operator’s expenses generally are limited to the video gambling terminals and their maintenance, which an independent contractor can handle. However, when a terminal is repaired, a representative of the gaming board must be present. “Terminal operators are not entrusted to perform system upgrades without oversight, nor can they independently make any repairs to a terminal’s internal mechanisms,” the lawsuit says, noting terminal operators have no role in monitoring or ensuring the integrity of video gambling.
The lawsuit notes that three-fourths of the companies’ workers are women and between 25 percent and 40 percent are minorities; many receive benefits packages. Since video gambling machines were introduced to Illinois in 2012, more than 5,800 video gambling parlors have opened in the state, according to the lawsuit.
