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August 22, 2019

Due to "very onerous" taxes and five proposed sites failing to attract enough tourists

State-requested study says Chicago casino proposal wouldn't be profitable

State-requested study says Chicago casino proposal wouldn't be profitable
"One of the things you should also note from the study is the incredible upside potential of a casino in Chicago that will dwarf the revenues that have been generated by any other casino in the state, by many magnitudes," said Mayor Lori Lightfoot.
United States | 08/14/2019

High taxes and other upfront costs would lead to low single-digit profit margins at best. However, the report says a downtown city casino has the potential to become the highest-grossing casino in Illinois, bringing USD 260 M in revenue back from Indiana. The Illinois Gaming Board has the authority to ask lawmakers in the next 90 days to change the terms for the Chicago site.

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rospects for a Chicago casino took a hit Tuesday after a study found that the state-approved proposal would not be viable because of “very onerous” taxes of up to 72 percent of gross revenues and that five South and West side sites put forward by the city would fail to draw enough tourists because they are seen as unsafe and inconvenient or lack nearby attractions.

State lawmakers now may be forced to restart negotiations on an issue that had eluded resolution for years until an agreement was reached this spring. The Chicago casino and five others statewide in Illinois are part of a massive gambling expansion bill Gov. J.B. Pritzker signed into law this summer that was seen as a signature win for the Democrat.

Because of the way the heavily negotiated law was written, however, a Chicago casino operator’s profit margin “would, in a best-case scenario, equate to a few pennies on the dollar,” according to a report from Las Vegas-based Union Gaming Analytics that was released Tuesday by the Illinois Gaming Board, as reported by Chicago Tribune.

High taxes and other upfront costs would lead to low single-digit profit margins, at best, on any of the five sites suggested as possible locations, the study said. If the city’s 33.3% tax on post-payout revenue were eliminated, a Chicago casino could generate annual returns above 20 percent, according to the report.

The study’s findings create challenges both for Pritzker, who is counting on casino revenue to help fund his $45 billion “Rebuild Illinois” infrastructure program, and for Mayor Lori Lightfoot, who took office in May as the gambling legislation was taking shape in Springfield and faces significant fiscal problems as she puts together her first city budget.

With the report pointing to the merits of a downtown location over the South and West side sites, Lightfoot also will face questions about her commitment to her campaign promise to bring development and jobs to struggling neighborhoods. Still, the governor and mayor each attempted to cast the study in a positive light and vowed to work with lawmakers on any necessary changes to the law. Lightfoot said she always had serious misgivings about the casino tax structure, but she took what she could get during negotiations this spring.

“As you know, the legislative process is a compromise,” Lightfoot said during a news conference at a South Side library. “These were issues that were flagged during the process, and in order to make sure that we had a financial structure that made sense, we asked for and received the ability to do a feasibility study.”

And she said she expects legislators to work in good faith to fix the legislation even though she has given up some of her leverage because suburban and downstate lawmakers already have approval for the new casinos and other gambling options they wanted. The potential financial windfall to the cash-strapped state is just too great not to finish the deal, Lightfoot said.

“One of the things you should also note from the study is the incredible upside potential of a casino in Chicago that will dwarf the revenues that have been generated by any other casino in the state, by many magnitudes," she said. "So getting this right is in everybody’s interests, not just Chicago.”

Indeed, the study says a city casino “has the potential to become the highest grossing casino in Illinois,” generating “significantly” more revenue than the current leader, Rivers Casino in Des Plaines, which brought in $441.8 million last year. The study also found a Chicago casino would bring $260 million in revenue back from Indiana.

Pritzker, at an unrelated news conference in Springfield, reiterated his desire to have a Chicago casino benefit communities that have been “left behind." “We’re all looking to optimize all of the features that can come from a successful casino. We obviously want to optimize revenue; we also want to optimize opportunity — jobs, particularly for communities that have been left out, left behind," he said. “We want to make sure we bring jobs for people who haven’t had those opportunities before. I know that the mayor feels strongly about that too, but that doesn’t necessarily dictate what the location might be.”

Union Gaming Analytics’ report says none of the city’s proposed sites would attract enough tourists and recommends choosing a downtown location instead. Even with a more centrally located site, though, the study found that excessive taxes and fees likely would ward off potential operators, who would generate “at best a 1% or 2% return annually.”

At the state’s 10 existing casinos, 5% of the post-payout revenue goes to the local government where the riverboat docks or where the casino is located. The state keeps 10% to 45%, depending on how much revenue the casino generates. For the Chicago casino, the city’s one-third take of post-payout revenue would be directed to severely underfunded police and firefighter pension plans.

In addition to those taxes, the city casino operator also would have to pay a $250,000 application fee upfront, a $15 million “reconciliation” fee when the license is issued and up to $120 million in gambling position fees — which cost $30,000 each. The casino is authorized to have up to 4,000 gambling positions — such as slot machines and blackjack tables — with some slot machines possibly going to O’Hare International and Midway airports.

After three years, the casino would have to pay a fee equal to 75 percent of its post-payout revenue from its most lucrative 12-month period, minus the fees paid upfront per gaming position. The study estimates that payment could total as much as $500 million.

State Rep. Bob Rita, the Blue Island Democrat who sponsored the legislation in the House, said city and state officials need time to analyze the study before deciding how to proceed. He said he’s committed to working with the mayor and the governor “to make it right for the state and the city.”

"Call me skeptical," said state Sen. Terry Link, D-Waukegan, the chief sponsor of the bill authorizing the Chicago casino, as well as new gambling outlets in his home Lake County and other locales around the state. "They’ll have to do a lot more convincing to get me" to agree to cut the tax rates. "All of us would like the largest profit margin we can," added Link. Whoever builds the casino "is still going to make a lot of money."

House GOP Leader Jim Durkin, who is close to Lightfoot, chose to emphasize the positive. "I look forward to working with Mayor Lightfoot and Gov. Pritzker on any adjustments that need to be made and hopefully we can address any issues in the upcoming veto session," he said in a statement.

The Illinois Gaming Board has the authority to ask lawmakers in the next 90 days to change the terms for the Chicago site.

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