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Illinois – New Gaming Opportunities for Everyone (to Get Cannibalized?)

Earlier this month, the Illinois General Assembly passed legislation that paves the way for a major expansion of gaming in the state. Slots at racetracks and airports, new casinos in six new cities (including Chicago), as well as sports betting proximate to large stadiums around the state will all add to the existing gaming landscape in the state. Existing casinos will also gain permission to expand their gaming floors (to 2,000 positions, from their current cap at 1,200 positions apiece). Still to be determined are two major issues: what should be done about the tax structure, and where in Chicago should this new casino go? A feasibility study apparently will be commissioned (jointly by the Illinois Gaming Board and the City of Chicago) to help figure out the answer to these questions, even though the State apparently has already made some projections as to what this expansion could potentially provide in terms of incremental taxes.

Current Market Performance

As the market currently stands, the state has 10 riverboat casinos, generating $1.4 billion in gross gaming revenues in 2018 (down approximately 2.5% from 2017). The Rivers Casino (in Des Plaines) is by far the market leader in terms of riverboat revenues, accounting for nearly half of all table gaming revenues in the state and 22% of the riverboat slot revenues (27% of all riverboat revenues), and by far exceeding all other casinos in terms of average daily win per slot and win per table (more than doubling every other casino in the state for both metrics).

In reality, for at least half of the casinos in the state, the average daily wins per slot and per table are at a level where replacing them with other revenue-generating sources would be far more worthy of consideration than the prospect of adding gaming positions (and moreover, most are not close to the maximum permitted by law currently). The addition of new facilities to the markets of these facilities would obviously make expansion less feasible due to some cannibalization.

Impacts of Expansion

Presently, the markets for Rivers, Grand Victoria in Elgin and the two casinos in Joliet are sufficiently large where casino expansions may be feasible if new competition didn’t enter. A racino in Arlington Heights and a casino in Waukegan would impact Rivers, and to a lesser extent, Grand Victoria. A casino in the south suburbs could significantly impact Joliet. But what may significantly impact these casinos will be where a Chicago casino is ultimately located – the State/City commissioned feasibility study will need to clearly consider two major issues in this regard: what location provides for the most incremental GGR (and gaming tax revenues) for the State, and what location provides the greatest economic impact and diversification of economic opportunities within the City of Chicago. These two criteria could very well provide for diametrically opposite conclusions, and given that the City and the Illinois Gaming Board are going to collaborate on determining where the city casino should go, it will be interesting to see what weight they put on each issue.

Additional Tax Revenues

The state has already seen the impacts of expansion of gaming in the state on the riverboat gaming industry resulting from the 2012 inception of the state’s video lottery industry. Video lottery revenues have increased every year since inception, exceeding the riverboat gaming revenues for the first time in 2018, at $1.5 billion; this should continue to grow, as the gaming bill increases the number of devices permitted per venue from 5 to 6, and maximum bets doubled from $2 to $4. Meanwhile, riverboat slot revenues have declined every year since 2012, albeit by an amount far less than video lottery has generated. Nevertheless, incumbent operators have to view the market as already heavily saturated, which should also make the State think conservatively as to how much incremental taxes these new gaming locations will produce, especially if tax rates in the state get modified.

Slots at Airports

It’ll also be interesting to see what value the State sees in having slots at airports. While the probability of having a flight delay at O’Hare and Midway is about as high as anywhere in the country, travelers are more apt to take that opportunity to do some free Netflix/Amazon binge watching than playing tight slot machines.

Scott Fisher, Ph.D.


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