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Louisiana of the North

The recent legislative session demonstrated once again that Illinois is the North Korea of gaming states.

Louisiana of the North

Sorry, we really shouldn’t compare states with bad regulations and ridiculous gaming expansions to Louisiana anymore. It just isn’t fair. Today, Louisiana is a well-regulated, operator-friendly, transparent gaming state. In the past, it had its problems with irrational regulators and regulations, institutional corruption and massive gaming expansion that hurt existing operators. But those days are gone, and Louisiana is now an upstanding member of the gaming fraternity.

I wish we could say the same for Illinois.

The recent legislative session demonstrated once again that Illinois is the North Korea of gaming states, per Penn National’s Tim Wilmott. Illinois currently has 10 casinos, each limited to 1,200 slot machines. The industry has been a ping-pong ball for state legislators determined to wring the last dime in taxes out of state gaming. At one time, the state charged as much as 75 percent tax on gross gaming revenue.

Several years ago, the state allowed VGMs (video gaming machines) at bars, restaurants and clubs. This added 30,000 slots to the casinos’ 12,000. Casino business suffered greatly as a result. The market was saturated.

So what does Illinois do next? How about six new casinos (including one in Chicago that will have 4,000 gaming positions), an increase in gaming positions at existing casinos from 1,200 to 2,000, slots at racetracks, slots at Midway and O’Hare airports, more VGMs at each location (along with a higher tax rate), slots at truck stops, sports betting both in casino sports books and on mobile devices, as well as sports books in seven stadiums and arenas across the state?

Now, our friends in the slot manufacturing business were beaming the day after the expansion was announced. They’re going to make lots of money selling slots. And the state is going to make lots of money in taxes.

It’s no secret that states use gaming as a “harmless” tax that can deliver tax revenues that aren’t felt by the general public. And it’s no mistake that the states that have allowed massive expansion of gaming are the high tax states like New York, Massachusetts, Pennsylvania and Maryland. And now Illinois, which is constantly seeking a boost for huge budgets from the gaming industry, has finally hit the wall. There’s not many more wells to tap anymore.

Ten years ago, the state legislature legalized VGMs at bars and restaurants, which has resulted in legal gambling in over 6,800 locations in Illinois. But a report from ProPublica has indicated that the games haven’t worked for Illinois, which borrowed heavily against predicted revenues. When those revenues fell short, Illinois taxpayers were the ones holding the bag.

The bill was poorly written with dozens of loopholes for both operators and cities hosting the devices. Even today, there is still a shortfall and charges of corruption in the bidding process held at secret meetings with the host town officials.

Now, they’re back at the public trough. But what guarantees that the taxes that have been presumed will arrive? The existing casinos already have a problem filling the 1,200 gambling positions they are allotted. What makes anyone think that adding another 800 will help?

Part of the law will allow the riverboats to come ashore in new casinos, but why would any operator invest in a new facility if there’s no chance that their business will increase to cover that additional cost?

One interesting tidbit about the Illinois expansion bill was the “penalty box” provision for the daily fantasy sports companies in the legalization of sports betting. According to the bill, DraftKings and FanDuel cannot set up shop in Illinois for 18 months unless they partner with an existing casino company. The reason for this was that the two companies continued to do business in Illinois before the legality of DFS was determined by the state attorney general.

This is the first time in the process of sports betting legalization that any company has been forced to the sidelines due to previous business practices. It happened in the online gaming world when PokerStars was punished for operating in the U.S. following “Black Friday,” but this is the first for sports betting.

Somehow, however, I think it’s a reaction to the dominance that the two DFS companies have in New Jersey—they control over 80 percent of the market there—so legislators were doing the bidding of casino companies worried about getting run over by DFS.

Casino companies should worry about the instability of the Illinois legislature rather than DFS, because you can never get comfortable with the business climate in Illinois. It’s like the weather. If you don’t like the weather, wait a couple of hours and it will change.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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