Questions Surround Chicago, New Casinos

Among its dozens of provisions, the new gambling law expected to be signed by Illinois Governor J.B. Pritzker (l.) will allow a casino in Chicago and five other locations. A feasibility study required by the law will help determine the Chicago casino location. Officials in communities in the other specified areas already are working with realtors and developers.

Questions Surround Chicago, New Casinos

Illinois Governor J.B. Pritzker is expected to sign comprehensive gambling legislation which is projected to annually generate for the financially challenged state an additional $150 million from casinos and $60 million from sports betting. In addition, the new law will allow video gambling operators to add one new terminal for a total of six, raising an additional $200 million annually for the state. Despite the additional revenue, Instinet Analyst Harry Curtis wrote, “Demand is not as endless as the legislature would like to believe.”

Curtis said the Chicago market already is “saturated,” although the new law will authorize a casino in Chicago, as well as casinos in the city’s south suburbs, Waukegan, Williamson County, Rockford and Danville, where mayors urged action before bordering states built their own casinos. The bill also will allow slots at Chicago’s two airports. Additionally, casinos will be allowed to increase positions from 1,200 to 2,000, with 4,000 allowed at the Chicago casino, nearly doubling statewide positions in the state from 43,000 to 81,000.

A Chicago casino had been one of former Mayor Rahm Emanuel’s top legislative priorities during his two terms. Mayor Lori Lightfoot saw it happen because Pritzker packaged it with a $45 billion infrastructure program, analysts said. One-third of its tax revenue will go to the city to fund police and fire pensions.

Lightfoot promoted a city-owned casino, like Emanuel and former Mayor Richard Daley. But she said she agreed to a privately owned facility to receive much-needed pension funds. “It’s not that I didn’t insist on municipal ownership. We tried, but it was very clear that was a proposal that wasn’t going to make its way through the general assembly. The legislative process is about compromise. We were able to get an important marker down to start the process for a Chicago casino.”

In the next few months, feasibility and impact studies required by the new law will be conducted to determine where to locate the Chicago casino. Pritzker said he wants it located outside the central business district, away from downtown or McCormick Place, in a “forgotten” area that hasn’t benefited from the downtown construction boom. Some possible sites include locations near Midway airport, the old South Works steel mill, the vacant former Michael Reese hospital site in Bronzeville, Stateway Gardens and Robert Taylor Homes public housing developments and the demolished Brach’s Candy factory in West Garfield Park.

Emanuel touted Illinois Port Authority land along the Calumet River, now championed by Alderwoman Susan Sadlowski Garza. She said, “Build a hotel. A casino. Get some canoeing, fishing, biking, hiking at Lake Calumet. It’ll just be a whole recreational mecca. It’s a gorgeous facility. If we can add on and bring other recreational activities, we can be the powerhouse.”

Developers in the south suburbs also are promoting preferred casino locations; most already have been in talks with casino operators. Officials in Homewood, Lynwood and Ford Heights have land they’d like to see developed for a casino complex. State Rep. Will Davis supports a proposal for East Hazel Crest and Homewood, including land in his 30th District. “In all fairness to the other communities, I think that’s the site that is the most viable,” he said, adding the towns have talked with an out-of-state gaming operator. “They are ready to go,” he said.

However, Coldwell Banker Commercial Broker Ken Peach said his $2.9 million, 58-acre listing in For Heights “makes the most sense. It would be smart to direct some of the economic benefits to Ford Heights because it is a poor community.” He said a new casino could attract business without hurting existing casinos such as Hollywood and Harrah’s in Joliet.

Under the new law, south suburban Chicago also will get a new harness racetrack with slots, table games and sports betting. It would be the first new Chicago-area horse racetrack since 1946. In Tinley Park, Village Manager Dave Niemeyer said the community had been considering a housing development at the former Tinley Park Mental Health Center in Orland Township. “Now our energies are focused on the racino because of the state legislation,” he said, adding officials have been in talks with commercial real estate developer Rick Heidner, an owner of Gold Rush Gaming, one of the state’s largest video gambling terminal operators.

At Rush Street Gaming, owned by Chicago billionaire Neil Bluhm, Chief Executive Officer Greg Carlin said the company is focused on how Rivers Casino will square off against the oncoming competition. “We have not yet determined our interest in pursuing any of the new licenses,” Carlin said.

The new law also will allow sports betting at brick-and-mortar locations, including casinos, racetracks and Chicago-area arenas–Wrigley Field, Guaranteed Rate Field, Soldier Field, United Center, SeatGeek Stadium, Chicagoland Speedway and World Wide Technology Raceway. In the first 18 months of legalized sports betting, online providers will have to partner with a physical location; after that, three online sports betting licenses will be available for $20 million each. Eighteen months is a compromise from the 3-year “penalty box” sought by Bluhm to punish FanDuel and DraftKings for illegally offering daily fantasy sports.

Other sports betting licenses will range from $3.2 million to $10 million. Revenue will be taxed at 15 percent, with proceeds going toward capital projects.

Some observers expressed alarm over a provision in the bill that exempts certain sessions of the Illinois Gaming Board, which will oversee the six new casinos and expansion at existing ones. State Senator Dave Syverson, whose measure was included in the final bill, said his intent was to ensure the Gaming Board was operating in public. “The key to this is to tighten up the guidance of what is being done in closed meetings, which is what we did with putting this in place. We passed this legislation not because we have concerns about who’s on the board now, but it’s there to protect what happens in the future,” Syverson said.

He explained the board would only be able to meet in executive session on personnel matters, on information that is privileged or involved proprietary or trade secrets and information that’s already exempted based on federal and state law. Senate President John Cullerton said at first he didn’t realize the provision was in the bill. But later he said through a spokesperson that it was meant to encourage the board to “do more in open session by reminding/spelling out the only reasons it could go to closed session.”

The state lottery also will be affected by the new gambling law, which will create a pilot program allowing sports betting at up to 2,500 Lottery retail locations in the first year, and another 2,500 in the second year. Lottery officials are seeking a vendor to run the program, which is projected to raise $20-$30 million annually.

With a dramatic increase in gambling positions and opportunities, problem gamblers are expected to increase. To that end, the new law includes $6.8 million in the coming year to fund problem gambling services–an increase of more than 750 percent compared with the roughly $800,000 a year that Illinois had been spending on problem gambling services. Pritzker said, “We’ve very much focused on that. We’ve got to make sure that those addiction treatment and therapy opportunities are all over the state, wherever there may be people who have a gambling addiction problem.”

In February, a ProPublica Illinois-WBEZ investigation found the state did not track problem gambling in any meaningful way. It noted Illinois is one of only a few states that do not track the rate of gambling addiction. Funds that had been allocated have not be spent, meaning the amount of state dollars going to agencies that serve addicts has actually decreased in recent years, the report stated. “There were not a lot of dollars for gambling addiction programs in prior budget. We’ve expanded it. But in prior budgets, you know, it’s only about $1.5 million, and they weren’t even spending that,” Pritzker said.

As a result, the Pritzker administration announced it will conduct a statewide study to measure addiction–the first such study in nearly three decades. Illinois Department of Human Services Assistant Secretary Kia Coleman said the increased funding will be used to “strengthen services” for gambling addicts and to conduct a “needs assessment. That will allow us to really get a very clear picture of what the state of gambling disorders is here in Illinois. We are committed completely to being able to address the needs for the entire state.”

The Illinois Gaming Board has a self-exclusion list for problem gamblers. Individuals on the list who are discovered inside a casino face arrest and the confiscation of any winnings. The new gambling bill will create a self-exclusion list for sports bettors, but there still is no such list for players at the state’s 7,000-plus video gambling locations. Observers said state officials feared a video-gambling self-exclusion list could lead to a decline in the $5.8 billion generated by the machines since they were introduced, of which $1.8 billion went to the state and local governments.

In Indiana, the state’s gaming industry is very concerned about the new casinos recently approved by Illinois lawmakers for Chicago and the south suburbs, which could impact Northwest Indiana’s five casinos. State Senator Eddie Melton said, “Should we be concerned? Maybe. I haven’t seen any studies or reports. It is something that we need to be mindful of and watchful in terms of what it’s going to look like.”

Melton added, “It is our sincere hope that our neighboring state’s latest policies do not affect the positives steps we’re making to preserve and grow our own regional and state economy. Every resident in this community should know we are committed to working proactively and passionately to continue to lead in a way that secures opportunity for us against any threats that should arise, today or tomorrow.”

Casino Association of Indiana Executive Director Matt Bell stated, “We know it’s going to hurt. Chicago is an absolutely critical market for northern properties, and, obviously, more pressure from our western border will impact us across the state. But we have great operators who are used to competing very hard against each other. They are going to compete very hard to maintain the business they’ve attracted from that market, to make their properties a great destination for that customer.”

Hammond Mayor Thomas McDermott Jr. said he expects the Horseshoe Casino, the state’s largest and most profitable venue, to “take a haircut” from a new Chicago casino. “It’s not wonderful. But we’ve been expecting it for a long time, and it finally happened. When Pritzker got elected and the new mayor of Chicago took over, it seemed like all the stars were aligning.”

However, McDermott said he expects casinos in East Chicago, Gary and Michigan City will be hit harder than Hammond. “Could we lose 20 percent? Yeah, it’s possible. Could we lose more? Possibly. But people still are going to gamble at Horseshoe,” he said, noting the new Illinois casinos may not be operational for years. For example, he said, it took three years from 2009, when Illinois legalized video gambling machines, for them to become operational.

Mike Hicks, an economics professor at Ball State University, who studies the tax and economic effects of casino openings, is less optimistic. He said Northwest Indiana casino will get “clobbered” by the new Illinois competition, since data show about 70 percent of gamblers at those casinos live in Illinois. It’s unlikely they’ll continue to travel across the state line to visit an Indiana casino when there’s one much closer to home. “Who is going to drive past a casino to go to Lake County? The newer casinos tend to attract more people, particularly in the early stages after they’re opened,” Hicks said.

But—since Illinois is planning to “tax the bejeezus” out of its casinos, Indiana casinos could offer higher slot payouts and more generous promotions to continue attracting Illinois patrons.

Elsewhere in Indiana, John Keeler, vice president and general counsel at Spectacle Entertainment, said the Illinois gaming expansion is “not the best news in the world.” Spectacle owns the Majestic Star casinos in Gary, one of which will move to a $300 million land-based venue in downtown Gary. “We’re just trying, like everybody else, to digest what it really means, and kind of reconfigure where we are and where we’re going in light of the passage of that bill,” Keeler said.