Chicago Casino Update and the Launch of Sports Betting in IL

Although it is not particularly surprising to see Illinois make a much of the new gaming law enacted in June, it is still no less painful to watch.

Stumbling out of the gates, the Land of Lincoln ensured that it would begin its journey towards legalized sports betting behind the 8-ball by failing to fill two vacancies on its gaming board for months on end.

Without a fully functioning gaming board, Illinois has not been able to make any real progress despite the law having been in effect for nearly two months. Mercifully, earlier this month the final two vacancies were filled by Governor J.B. Pritzker.

One of the biggest upcoming projects on the board’s docket will be finalizing the details of the casino coming to Chicago, which will be more than double the size of any casino currently operating in the state.

Predictably, Chicago was late in commissioning an outside party to conduct a review of profitability for five potential sites submitted for the casino. And according to the feasibility study, the tax structure outlined in the gaming bill is a serious impediment to delivering the long sought-after casino.

Of the five sites studied, not a single one was deemed as a profitable venture — a ridiculous thought considering the 9.5-million-person population of the greater Chicago area.

Part of the reason zero sites were deemed financially viable is that none are in the downtown area. The consultant hired for the study, Union Gaming out of Las Vegas, determined that the only location that may work would be “a centrally-located casino that is in close proximity to high-quality hotels and other notable tourist attractions.”

As we discussed last month, this was a predictable conclusion.

Chicago Casino Faces Obscene Tax and Fee Structure

The biggest and potentially fatal problem with the Chicago casino is the tax structure set up by the Illinois gaming bill. Union Gaming concluded that the effective tax rate on the casino would come out to a mind-blowing number of approximately 72%.

And it doesn’t end with the 72% effective tax rate. On top of that is something the state calls a reconciliation fee, which will be 75% of the future casino’s most profitable 12-month period and is due in three years.

It is no wonder then that there has been tepid interest at best coming from Vegas as far as potential investors are concerned.

Union Gaming concludes:

“The reconciliation fee alone would wipe out any profits generated for many years, if not decades under the AGR tax structure. The return on investment profile for all five sites is subpar, if not negative over the five years projected herein. Therefore, the reconciliation fee for a casino in the City of Chicago not only magnifies the lack of feasibility, it also shuts the door on the ability of the developer to obtain financing under the context of the AGR tax structure that results in a barely-profitable casino at best.”

Chicago Casino Location and Profits

While three of the five locations were technically deemed profitable, the margins are so slim that any profits would eventually go back to the state of Illinois in the form of application and licensing fees.

The most profitable location was at 31st Street and Cottage Grove Avenue. This is the same site that we deemed the best of the early candidates, sitting at the location of the former Michael Reese Hospital, one mile south of McCormick Place.

Convention officials remain concerned about the close proximity of a casino to a convention center, fearing convention goers will flee the doldrums of a conference for the excitement of a new casino.

People have free will though, and adults paying money to go to a convention should be allowed to do whatever it is that they please with their time. If a convention isn’t compelling enough to keep people out of a casino, that’s on the convention hosts, not on the casino. And besides, having nearby attractions is what brings conventions to new locations, and helps nudge patrons to purchase a ticket.

Despite being the most profitable location studied, this site was only projected to have a profit margin of 3.2% in the first five years, generating net revenues of $966.1 million. Union Gaming projects total expenses coming in at $935.4 million, with $638.9M of that coming from taxes alone.

On top of all that, there is an additional 33.3% privilege tax slapped on top of adjusted gross receipts, which effectively wipes out any original profits.

Is Downtown an Option for Chicago Casino?

The common thread connecting the five sites submitted to Union Gaming was that none are located downtown. According to Union Gaming’s study, “Tourists will not patronize a casino in an area that is inconvenient relative to where they are staying or perceived as unsafe. Nor will tourists be eager to book a room at a casino’s hotel if there are no other easily accessible attractions nearby.”

Chicago Mayor Lori Lightfoot has been treading carefully when discussing a potential casino located in the downtown hub.

In July, the Mayor said, “I’m not saying a downtown site is off the boards. This is not the definitive list. We’ll form that later.”

She went on to say, “there’s some concern about whether or not having a downtown site will detract from tourism,” which makes absolutely no sense. The Mayor then offered more candid thoughts when saying instead of dealing “with that noise now – it’ll have to be dealt with down the road – we just took other sites.”

With the feasibility study saying that the only profitable location for a casino would be downtown, one would hope a centrally located site will be more seriously considered in the future.

Given the results of the study by Union Gaming, the new law will certainly have to be revised at the upcoming October veto session.

The odds of any changes to the law being minor or being agreed-upon without a hitch do not look good given what we know about Chicago politics. As far as potential investors and gaming operators go, knowing the law will be changing but not exactly how will only delay matters even further.

Illinois Gaming Board in Place

The one positive, if you can call it that, is Illinois Governor Pritzker named the final two open seats on the Illinois Gaming Board. While this is progress, the lack of a fully functioning gaming board up until this point means that valuable time has been wasted.

The new Chairman of the Board is Springfield attorney Charles Schmadeke, and the final member is senior counsel to Boeing, Anthony Garcia.

While there was speculation that Pritzker may make sweeping changes to the board, that turned out to be a red herring.

Schmadeke and Garcia are perfect candidates for the selection. Schmadeke has a pristine background and familiarity with many lawmakers in Springfield. Garcia, meanwhile, investigates violations of anti-corruption laws at Boeing. Neither of the two new members looks like a wheel-greaser when it comes to approving new gaming licenses, as had been feared by some.

While the board is finally in place, there is a mountain of work ahead of them.

When Will Sports Betting Commence in Illinois?

It’s hard telling with Illinois, but the likeliest correct answer is that it’s still going to be a while.

Previously, optimistic estimates put the start of IL sports betting as early as September – just in time for NFL season.

A more realistic estimate projected everything being in place in time for locals to bet on the Super Bowl in February, but even that looks increasingly unlikely by the day.

The most realistic projected date was being able to legally bet on the Super Bowl in Illinois, but now even that looks less and less likely by the day.

Meanwhile, bordering states are moving at a much faster timeline. Sports betting got underway in Iowa this week and Indiana is aiming to kick off wagering on September 1st.

According to Gaming Board Administrator Marcus Fruchter, there is no finish line in sight. “We’re creating an entire industry from scratch,” he said. “You’ve got to take time to do that deliberately and not rush into something.”

At this point, we’ll consider ourselves lucky if we can place MLB futures at an Illinois sportsbook this spring.

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