Stakeholders propose loosening betting restrictions rather than raising tax rates

Illinois lawmakers discuss higher sports betting fees and video gambling tax

Rep. Keith Wheeler argued sweepstakes machines should be placed under the same regulatory laws as video gambling terminals. Changes would be packaged in a gambling overhaul bill that has yet to appear in the Legislature.
2019-05-10
Reading time 4:10 min
Gov. J.B. Pritzker plans to increase state’s tax rate from 30 to 50 percent on video gambling machines. Illinois Gaming Machine Operators Association proposed raising the bet limit on single plays, increasing the maximum winnings, higher jackpots and more gambling terminals allowed at one location. Rep. Michael Zalewski filed two amendments on sports betting bills, but stakeholders mentioned limitations that make paying the requested fees and taxes (25%) prohibitive.

The Illinois House Executive Committee, chaired by Democratic Rep. Chris Welch of Hillside, heard testimony Thursday from representatives of the video gambling industry who unanimously oppose a proposed tax hike that Gov. J.B. Pritzker outlined in his late-February budget address. No legislation has been introduced so far.

Ivan Hernandez, who heads the Illinois Gaming Machine Operators Association, said lawmakers should loosen betting restrictions rather than raise video gambling tax rates. “Our proposal is projected to far exceed (Gov. J.B. Pritzker’s) request, without resorting to a tax increase,” Hernandez said.

Video gambling machines are taxed at 30 percent, with the remaining money split 50-50 between the machine operator and the establishment housing the machines. Pritzker’s plan would increase that state’s tax rate to 50 percent, resulting in more than $100 million in new revenue for state and local governments.

Opponents have framed their argument around the local establishments – mom-and-pop restaurants, bars, VFW posts and more – that they say rely on the machines for increased foot traffic and, ultimately, successful business.

Elements of Hernandez’s proposal include raising the bet limit on single plays from $2 to $4, increasing the maximum winnings on a single play from $500 to $1,199, allowing games with higher jackpots, and increasing the number of gambling terminals allowed at one location from five to six. Those measures, Hernandez said, would create $210 million in new tax revenue the first two years, without changing the tax rates.

Policy objectives were not so clear cut for the other topic of the hearing, which focused on the largely unregulated market of “sweepstakes” machines that the Illinois Gaming Board, along with many state and federal courts, have maintained are illegal. These are in many ways similar to video gambling machines, but do not fall under the same state oversight, nor are taxes on them paid to state and local governments, according to a WBEZ investigation last year.

Because they face no other regulation than to be registered with the Illinois Department of Revenue, the machines can be found in places where video gambling terminals have been banned, WBEZ reported.

Cory Aronovitz, a lawyer with the Chicago-based Casino Law Group, told lawmakers unfamiliar with the matter that the machines are kiosks for “product promotion,” meaning a person pays cash to the machine, receives, for example, a coupon for a discount on items on a website, then gets the chance to win cash by playing a slots-like game.

Rep. Keith Wheeler, R-Oswego, argued sweepstakes machines should be placed under the same regulatory laws as video gambling terminals. He said any regulatory changes addressing sweepstakes machines would be packaged in a gambling overhaul bill that has yet to appear in the Legislature.

On top of considering how to legalize sports betting and whether to allow more casinos in Illinois, state lawmakers are also considering changes to policy affecting the video gambling terminals that appear in almost 7,000 local establishments across the state.

Sports betting amendments

Rep. Michael Zalewski filed two amendments to Illinois sports betting legislation ahead of the House Sales, Amusement and Other Taxes Subcommittee hearing last Wednesday. They replace the five proposals previously discussed in the state, and would establish licensing and tax fees unprecedented in the US sports betting market. Stakeholders mentioned limitations, or lack thereof, that make paying the requested fees and taxes prohibitive.

While H 3308 served as Zalewski’s sports betting bill in earlier discussions, the amendments shift the focus to H 1260. This week, Zalewski took over as primary sponsor of the bill, which will apparently be the new IL sports betting vehicle, according to Legal Sports Report.

One change from previous proposals is that neither amendment requires in-person registration for mobile wagering. At Wednesday’s hearing, stakeholders expressed having issues with much of the language in the two amendments.

The first proposed amendment authorizes Illinois sports betting for riverboat casinos, horse racing tracks, off-track betting (OTB) parlors, video gaming operators and the lottery. Video gaming operators can place sportsbooks in 10% of licensed establishments and operate one online skin. All master license fees are $10 million or 5% of net terminal income, adjusted gross receipts or total handle — whichever is greater. Skin licenses are $5 million each, and adding a sports stadium, Off-track betting or other brick-and-mortar location is another $5 million.

The tax rate is 25% of adjusted sports wagering receipts. The lottery can allow parlay wagering in 2,500 retail locations. The initial license fee is $30 million, and the tax rate is 100% of sports wagering receipts.

The second option does not include the lottery but does allow for companies such as DraftKings Sportsbook and FanDuel Sportsbook to get their own licenses at a higher cost, with the possibility of a bad-actor delay. The amendment also gives in to sports leagues demands on integrity fees and data. Tax rate of 25% on annual adjusted gross receipts with funds go evenly to the State Construction Account Fund, Pension Stabilization Fund and Common School Fund. Horse tracks must pay 2% of AGR to the Horse Racing Purse Fund, and an integrity fee of 0.2% on handle paid to the sports leagues.

Daily fantasy sports giant FanDuel is already offering to bring hundreds of jobs to Chicago if sports betting is legalized. As legislators in Springfield continue their meetings to discuss the prospect of allowing sports wagering statewide, the company's CEO says he'd like to establish FanDuel's first Midwest outpost in Chicago–complete with as many as 300 new jobs –if a bill comes to pass.

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